TIPS INDUSTRIES LTD, MUMBAI V. ACIT 16(1), MUMBAI

ITA 6196/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7488 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: misc
• Appeal Filed On: 10-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Question of law; Cost of acquisition; Bad and doubtful debts; Commercial expediency; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 37(1); 250

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.6194 TO 6196/ MUM/2017 ( / ASSESSMENT YEAR: 2011 - 12, 2012 - 13 AND 2013 - 14) M/S. TIPS INDUSTRIES LTD., 601, DURGA CHAMBERS, 6 TH F LOOR, LINKING ROAD, KHAR WEST, MUMBAI 400054 / V. ACIT 11(1) ROOM NO. 439, AAYAKAR BHAWAN M.K.MARG MUMBAI - 400020 ./ PAN : AAACT5284A ./ I.T.A. NO. 6291/ MUM/2017 ( / ASSESSMENT YEAR: 2012 - 13) ACIT 16(1) ROOM NO. 439, AAYAKAR BHAWAN M.K.MARG MUMBAI - 400020 / V. M/S. TIPS INDUSTRIES LTD., 601, DURGA CHAMBERS, 6 TH F LOOR, LINKING ROAD, KHAR WEST, MUMBAI 400054 ./ PAN : AAACT5284A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI. DEEPAK TRALSHAWAL A REVENUE BY : SHRI. O.P MEENA (DR) / DATE OF HEARING : 06 - 02 - 2019 / DATE OF PRONOUNCEMENT : 03 .05 .2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THESE F OUR APPEALS, THREE FILED BY THE A SSESSEE AND ONE BY R EVENUE, RELATES TO ASSESSMENT YEARS(AY) 2011 - 12, 2012 - 13 AND 2013 - 14. 1.2 THE ASSESSEE HAS FILED AN APPEAL IN ITA NO. 6194/MUM/2017 FOR AY 2011 - 12 WHICH IS DIRECTED AGAINST THE APPELLATE ORDER BEARING NO. CIT(A) - I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 2 | P A G E 4/TR. - 241/ACIT - 11 (1) /14 - 15 DATED 03.07.2017 PASSE D BY LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 4,MUMBAI(HEREINAFTER CALLED THE CIT(A)) FOR AY 2011 - 12 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM ASSESSMENT ORDER DATED 31.12.2013 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143(3) OF THE INCOME - TAX ACT,1961(HEREINAFTER CALLED THE ACT) FOR AY 2011 - 12. 1.3 THE CROSS APPEALS HAVE BEEN FILED BY ASSESSEE AND REVENUE IN ITA NO. 619 5 /MUM/2017 AND ITA NO. 6291/MUM/2017 RESPECTIVELY FOR AY 20 12 - 13 , BOTH BEING DIRECTED AGAINST THE APPELLATE OR DER BEARING NO. CIT(A) - 4/IT - 26/ACIT - 16(1) /14 - 15 DATED 04 .07.2017 PASSED BY LEARNED CIT(A) FOR AY 2012 - 13 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM ASSESSMENT ORDER DATED 26.12.2014 PASSED BY AO U/S 143(3) OF THE 1961 ACT FOR AY 2012 - 13. 1.4 THE ASSESSEE HAS FILED AN APPEAL IN ITA NO. 619 6 /MUM/2017 FOR AY 20 13 - 14 WHICH IS DIRECTED AGAINST THE APPELLATE ORDER BEARING NO. CIT(A) - 4/ IT. - 22/ACIT - 16(1)/16 - 17 DATED 04 .07.2017 PASSED BY LEARNED CIT(A) FOR AY 201 3 - 1 4 , THE APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A ) FROM ASSESSMENT ORDER DATED 02.03.2016 PASSED BY LEARNED AO U/S 143(3) OF THE 1961 ACT FOR AY 2013 - 14 . 2. FIRST, WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO. 6194/MUM/2017 FOR AY 2011 - 12. THERE IS NO APPEAL FILED BY REVENUE FOR AY 2011 - 12. 3 . THE G ROUNDS OF APPEAL RAISED BY THE A SSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) IN ITA NO. 6 1 94/MUM/2017 FOR AY 2011 - 12, READ AS UNDER: - 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT APPEALS - 4, MUMBAI ERRED IN I) SUSTAINI NG THE ADDITIONS OF RS.20,00,000/ - FOR ADVANCES GIVEN DURING THE COURSE OF BUSINESS ON THE GROUND THAT ACQUIRING LIEN ON THE OVERSEAS TERRITORY OF FILMS WAS NOT THE BUSINESS OF THE APPELLANT COMPANY, IGNORING THE FACT THAT THE BUSINESS OF THE APPELLANT COM PANY IS ALSO OF PRODUCTIONS AND DISTRIBUTION OF CINEMATOGRAPHIC FILMS. II) UPHOLDING THE ADDITION OF RS.1,08,00,000/ - FROM INTEREST PAID ON LOAN ON THE GROUND THAT THE INTEREST FREE RENT DEPOSIT HAVE BEEN GIVEN FROM THE BUSINESS RECEIPTS/TRANSACTIONS, I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 3 | P A G E IGNO RING THE FACT THAT THE INTEREST FREE RENT DEPOSIT ARE FROM THE FREE RESERVES AND SURPLUS OF THE APPELLANT COMPANY. III) YOUR PETITIONER CRAVES YOUR LEAVE TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL , IF ANY, AT THE TIME OF HEARING . 4 . THE BRIEF F ACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AUDIO C ASSETTES & CD S, P RODUCTION AND DISTRIBUTION OF FEATURES FILM. 5. DURING THE COURSE OF ASSESSMENT PROCEEDING U/S. 143(3) R.W.S. 143(2) OF THE 1961 ACT, FROM THE PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE COMPANY, I T WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAS GIVEN INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9,00, 00, 000/ - TO MRS. RENU K. TAURANI AND MRS. VARSHA R. TAURANI. T HE AO OBSERVED FROM THE PERUSAL OF THE P ROFIT & L OSS ACCOUNT THAT THE ASSESSEE HAS PAID AN INTEREST OF RS. 6,42,07,701/ - WHICH WAS CLAIMED AS AN EXPENDITURE ON ACCOUNT OF INTEREST PAID ON TERM LOANS AND OTHER LOANS . THE ASSESSEE WAS ASKED TO EXPLAIN BY THE AO AS T O WHY THE SA ID INTEREST EXPENDITURE SHOULD NOT BE DISALLOW ED U/S. 36(1)(III) OF THE ACT. 5.2 . THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE ASSESSEE HAS TAKEN COMMERCIAL PREMISES BEARING NUMBER 501 - 601, DURGA CHAMBERS, 278/E, LINKIN G ROAD , KHAR W EST, MUMBAI 400052, ON LEAVE & L ICENCE BASIS FROM MRS. RENU K. TAURANI AND MRS. VARSHA R. TAURANI FOR THE PERIOD OF THREE YEARS FROM 01.04.2010 TO 31.03.2013, IN TERMS OF LEAVE & LICENSE AGREEMENT DATED 01.04.2010 . IT WAS EXPLAINED THAT THE SAID AGREEMENT WAS EXECUTED OWING TO THE FACT THAT EARLIER LEAVE & LICENS E AGREEMENT DATED 01.01.2007 HAD EXPIRED . IT WAS EXPLAINED BY THE ASSESSEE BEFORE THE AO THAT LETTER DATED 29.01.2008 WAS RECEIVED BY THE ASSESSEE FROM LICENSOR REQUESTING FOR INCREASE IN COMPENS ATION AND INTEREST FREE RENT DEPOSITS. THE ASSESSEE SUBMITTED THAT AS PER NEW LEAVE & LICENCE AGREEMENT THE MONTHLY COMPENSATION IS AGREED AT RS. 4,50,000/ - FOR EACH SUCH PREMISES EXCLUDING SERVICE TAX . IT WAS EXPLAINED THAT BESIDE S THIS INTEREST FREE REF UNDABLE RENT DEPOSIT OF RS. 9,00, 00, 000/ - WAS ALSO DEPOSITED WITH THE LICENSORS . THE RECEIPTS ALONGWI TH LEAVE & LICENCE AGREEMENT WERE DULY FURNISHED BY THE ASSESSEE BEFORE THE AO. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE SAID AMOUNT OF RS. 9,00, 00, 000/ - AS INTEREST FREE REFUNDABLE RENT DEPOSIT WAS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 4 | P A G E GIVEN OUT OF INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE COMPANY , THE DETAILS OF WHICH ARE AS UNDER: - (FIGURES IN LACS) AY 2004 - 05 AY 2008 - 09 I) SHARE CAPITAL 1265.29/ - 1730.59/ - II )RESERVES AND SURPLUS(NET) 3648.00/ - 5273.63/ - III) TOTAL INTEREST FREE FUND 4913.29/ - 7004.22/ - IV) INTEREST FREE REFUNDABLE DEPOSIT 200.00 700.00 THE ASSESSEE ALSO RELIED UPON THE PRESUMPTION AVAILABLE WHEREIN IF INTEREST FREE FUNDS AVAILABLE ARE MORE THAN INTEREST FREE REFUNDABLE RENT DEPOSIT, THEN IT WILL BE PRESUMED THAT THE ASSESSEE HAS MADE DEPOSIT OF INTEREST FREE RENT DEPOSIT OUT OF INTEREST FREE FUND S AVAILABLE WITH IT. 5.3 THE AO REJECTED THE CONTENTION S OF THE ASSESSEE COMPANY BY HOLDING THAT THESE COMMERCIAL PREMISE S WE RE TAKEN ON LEAVE AND LICENSE BASIS FROM THE WIVES OF THE D IRECTOR OF THE COMPANY. IT WAS ALSO OBSERVED BY THE AO THAT THESE PAYMENT S OF INTEREST FREE REFUNDABLE RENT DEPOSIT WERE GIVEN OUT OF BUSINESS RECEIPTS AS I S EVIDENT FROM THE BANK STATEMENT OF IDBI BANK FROM 01.01.2008 TO 31.03.2008 WHICH AS PER AO MADE IT CLEAR THAT INTEREST FREE REFUNDABLE RENT DEPOSITS WERE NOT GIVEN OUT OF FREE RESERVES . IT WAS OBSERVED BY THE AO THAT ASSESSEE IS PAYING INTEREST ON THE TER M LOANS AND OTHER LOANS RAISED BY IT WHILE BUSINESS RECEIPTS WERE UTILISED FOR ADVANCING INTEREST FREE REFUNDABLE RENT DEPOSIT . THE AO REJECTED THE CONTENTION OF THE ASSESSEE THAT FREE RESERVES WERE UTILISED FOR GIVING SAID INTEREST FREE RENT DEPOSIT AN D IT WAS HELD BY THE AO THAT THE ASSESSEE COMPANY HAS UTILISED THE INTEREST BEARING FUNDS TO ADVANCE THE INTEREST FREE RENT DEPOSITS WHICH LED TO DISALLOWANCE OF 12% OF INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9,00, 00, 000/ - BY THE AO L EADING TO DIS ALL OWANCE OF RS. 1,08,00,000/ - U/S 36(1)(III) OF THE 1961 ACT , VIDE ASSESSMENT ORDER DATED 31.12.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT. 6 . THE SECOND ISSUES CONCERN S ITSELF WITH THE WRITE OFF OF RS. 20,00,000/ - AS BUSINESS LOSS ON ACCOUNT OF ADVAN CE S TOWARD AUDIO RIGHTS TO KARISHMA INTERNATIONAL AS IRRECOVERABLE. THE ASSESSEE WAS ASKED BY THE AO TO JUSTIFY THE SAME AS TO WHY THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE ASSESSEE IN REPLY SUBMITTED BEFORE THE AO AS UNDER: - I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 5 | P A G E CLAIM AS BUSINESS LOSS OF AMOUNT OF RS. 20,00,000 / - ADVANCED TOWARDS RIGHTS TO KARISHMA INTERNATIONAL NOW CONSIDERED AS IRRECOVERABLE: THE BUSINESS OF THE ASSESSEE COMPANY IS THAT OF RE - PRODUCTION OF AUDIO SOUND & MUSIC FROM THE ORIGINAL TRACK RECORD OF THE SONGS PROVIDED BY THE VARIOUS FILM PRODUCERS COMMONLY KNOWN AS 'AUDIO RIGHTS' (HEREINAFTER REFERRED TO AS MASTER PLATE). THE MASTER PLATE CONTAINS THE ORIGINAL SOUND TRACK OF THE FILM RELATING TO THE SONGS AND IT IS WITH THE HELP OF THIS MASTER PLATE, THE ASSESSEE COMPANY MAKES SEVERAL COPIES OF AUDIO CASSETTES WHICH ARE ULTIMATELY SOLD IN THE MARKET. THE MASTER PLATE IS SIMILAR TO DESIGNS, FORMULA, MOULD AND RAW MATERIAL FROM WHICH COPIES ARE MADE. SINCE THE MASTER PLATE IS ONLY A RAW MATERIAL, THE CO ST OF PURCHASE OF THE RAW MATERIAL IS ALLOWABLE DEDUCTION IN EVALUATING THE GROSS PROFIT DERIVED IN THE MANUFACTURE AND SALE OF THE COPY. IN ORDER TO PRODUCE AND MARKET THE AUDIO CASSETTES UNDER ITS LOGO 'TIPS'' ASSESSEE COMPANY HAVE TO PURCHASE AUDIO RIGHTS OF VARIOUS FILMS FROM VARIOUS PRODUCERS OF FEATURE FILMS FOR WHICH ADVANCES HAVE TO BE PAID ON EXECUTION OF THE WRITTEN AGREEMENT FROM TIME TO TIME, AS THE COMPLETION OF FEATURE FILM TAKES APPROX. 15 TO 24 MONTHS. ACCORDINGLY THE ASSESSEE COMPANY HA D PAID ADVANCE OF RS . 65,00,000/ TO THE SAID PRODUCER IN THE FINANCIAL YEAR 2002 - 2003 FOR ACQUISITION OF AUDIO RIGHTS OF MUSI C FEATURE FILM OF PRODUCTION NO. 7. ASSESSEE COMPANY HAD VARIOUS MEETINGS AND DISCUSSIONS WITH THE ABOVE SAID PARTY TO RECOVER AN A MOUNT OF RS. 65,00,000/ - . FINALLY ON MARCH 2004 ASSESSEE COMPANY HAD REACHED AN UNDERSTAN DING TO CREATE AN LIEN OVERSEAS TERRITORY OF THE FE ATURE FILM 'DIL CHURAKE CHAL DIY E' PRODUCED BY M/S. KARISHMA INTERNATIONAL AND ASSIGNED TO M/S RAMNORD RESEARCH LABO RATORIES PVT LTD. IN TERMS OF THE SAID LETTER OF UNDERSTANDING DATED 22ND MARCH, 2004 IT HAD BEEN MUTUALLY AGREED THAT THE ASSESSEE COMPANY HAD LIEN ON THE OVERSEAS TERRITORY OF THE ABOVE SAID FEATURE FILM TO THE EXTENT OF THE AMOUNT OF RS 65,00,000/ - ZERO X COPY OF THE LETTER OF ARRANGEMENT BETWEEN ASSESSEE COMPANY AND M/S KARISHMA INTERNATIONAL DATED 22 - 3 - 2004 IS ENCLOSED HEREWITH FOR YOUR KIND PERUSAL AND RECORD. ASSESSEE COMPANY COU LD RECOVER AN AMOUNT OF RS. 45,00,000 / - FROM THE OVERSEAS RIGHTS OF FILM 'SHADI KARKE PHAS GAYA YAAR' FROM REDSUN EXPORTS PUT LTD ON BEHALF OF M/S KARISHMA INTERNATIONAL. ZEROX COPY OF THE LETTER DATED 31 ST JULY IS ENCLOSED HEREWITH. THEREAFTER, ASSESSEE COMPANY RIGOROUSLY FOLLOWED UP WITH M/S KARISHMA INTERNATIONAL FOR THE REC OVERY OF THE BALANCE AMOUNT BUT THE SAID PARTY EXPRESSED THEIR INABILITY TO MAKE ANY FURTHER PAYMENT AS THEY HAD SUFFERED HEAVY LOSSES IN THEIR VARIOUS FILM PRODUCTIONS AND THEREFORE REFUSE TO MAKE ANY PAYMENT. DURING THE YEAR UNDER ASSESSMENT THE ASSESSEE COMPANY HAS WRITTEN OFF AN AMOUNT OF RS. 20,00,000/ - BEING AMOUNT I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 6 | P A G E RECOVERABLE FROM M/S KARISHMA INTERNATIONAL FOR ACQUISITION OF AUDIO RIGHTS AS BUSINESS LOSS FOR THE REASON THAT THE SAID PRODUCER TILL THIS DATE HAS NEITHER COMMENCED PRODUCTION OF THE FEA TURE FILM NOR HAS ENTERED INTO OR COMMENCED ANY OTHER ALTERNATIVE PRODUCTION OF FEATURE FILM TO ADJUST THE AMOUNT GIVEN TO HIM. IN FACT THE SAID PRODUCTION HOUSE M/S KARI SHMA INTERNATIONAL HAS DISCONTINUED THE FILM PRODUCTION BUSINESS. THE FACT THAT THE SA ID PARTY HAS DISCONTINUED FILM PRODUCTION BUSINESS THE BALANCE AMOUNT HAD BECOME IRREVOCABLE, THE ASSESSEE COMPANY HAD NO OTHER ALTERNATIVE, BUT TO CLAIM THE SAID ADVANCE AS BUSINESS LOSS AND ACCORDINGLY DEBITED THE AMOUNT OF RS. 20,00,000/ - TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'BAD DEBTS '. IT IS RE - ITERATED THAT THE AUDIO RIGHT (MASTER PLATE) IS PRIMARILY A RAW MATERIAL AND INCIDENTALLY HAPPENS TO BE THE SUBSTRATUM OF THE BUSINESS OF THE ASSESSEE COMPANY AND THE SUBSTRATUM PART IS ENTIRELY INCID ENTAL TO THE MAIN ACTIVITY OF THE PRODUCTION OF THE ORIGINAL MASTER PLATE. IN THIS REGARD IT IS SUBMITTED THAT THE HONOURABLE TRIBUNAL MUMBAI IN THE VERY CASE OF THE ASSESSEE COMPANY FOR VARIOUS ASSESSMENT YEAR HAS HELD THAT AUDIO RIGHT IS RAW MATERIAL AND THEREFORE THE PURCHASE OF AUDIO RIGHT IS OF REVENUE NATURE, AND THEREFORE THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. FURTHER IT IS RE - ITERATED THAT M/S KARISHMA INTERNATIONAL HAS DISCONTINUED THE FILM PRODUCTION BUSINESS AND AS THE ADVANCE PAYMENT TO WARDS AUDIO RIGHTS HAS BEEN MADE IN THE FINANCIAL YEAR 2002 - 2003, THE SAID DEBT HAS BECOME TIME BARRED UNDE R THE LAW OF LIMITATION ACT, AN D THEREFORE THE SAID AMOUNT CAN NOT BE LEGALLY RECOVERABLE FROM THE ABOVE SAID PARTY. THOUGH THE ASSESSES COMPANY HAD V ARIOUS MEETINGS AND DISCUSSIONS WITH THE SAID PARTY FOR THE RECOVERY OF THE ABOVE AMOUNT, BUT THE SAID PARTY HAS REFUSED TO MAKE PAYMENT OF THE BALANCE AMOUNT ADVANCED FOR ACQUISITION OF AUDIO RIGHTS. THE ASSESSEE COMPANY HAS NO OTHER RECOURSE BUT TO WRITE OFF THE SAID AMOUNT AS BUSINESS LOSS. IN VIEW OF THE ABOVE FACTS AND CONSIDERING THE FACT THAT THE ADVANCE PAID TO THE SAID PARTY IS TOWARDS SECURING RAW MATERIAL FOR THE MANUFACTURE OF ITS PRODUCT THE SAME HAVE BECOME IRREVOCABLE AND ACCORDINGLY THE SAID AMOUNT HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY DEBITING IN PROFIT AND LOSS. IT IS SUBMITTED THAT THE ADVANCE TOWARDS ACQUISITION AUDIO RIGHTS IS FOR BONA FIDE PURPOSE OF THE ASSESSEE BUSINESS, AS SUCH THE SAME BE ALLOWED AS BUSINESS LOSS.' 6.2 . THE AO REJECTED THE CONTENTION S OF THE ASSESSEE BY HOLDING THAT THE SAID AMOUNT WHICH IS GIVEN TO CREATE AN LIEN O N OVERSEAS TERRITORY OF THE FEATURE FILM DIL CHURAKE CHAL DIYE PRODUCED BY M/S. KRISHMA INTERNATIONAL AND ASSIGNED TO M/S. RAMNORD RESEARCH LABORATORIES P. LTD., IS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION AS REVENUE EXPENSES I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 7 | P A G E VIDE ASSESSMENT ORDER DATED 31.12.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT . 7 . AGGRIEVED BY ASSESSMENT ORDER DATED 31.12.2013 PASSED BY THE AO U/S 143(3) OF THE 1961 ACT, THE ASSESSEE FILED FIRST APPEAL BEFORE LD. CIT(A). THE LD. COUNSEL FOR THE ASSESSEE REITERATE D THE SUBMISS IONS BEFORE LEARNED CIT(A) AS WERE MADE BEFORE THE AO WHICH ARE NOT REPEATED HERE. THE ASSESSEE RELIED UP ON THE D ECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. NIC H OLAS PIRAMAL ( INDIA ) LTD., (2016) 95 CCH 2015 (BOM.) . THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD. (2009) 77 CCH 0019 (B OM ). THE ASSESSEE ALSO RELIED UPON DECISION IN THE CASE OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. M R S. SUS HMA KAPOOR (2009) 77 CCH 0958 (DELHI). THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE REJECTED THE SAME VIDE APPELLATE ORDER DATED 03.07.2017 , BY HOLDING AS UNDER: - 7.2. I HAVE CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER, EVIDENCES ON RECORD AND RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. I FIND THAT THE APPELLANT HAS TAKEN COMMERCIAL PREMISES 501 - 601 OF DURGA CHAMBERS, 278/E, LINKING ROAD, KHAR(WEST), MUMBAI - 400 052 ON LEAVE & LICENSE FROM WIVES OF DIRECTORS NAMELY; MRS. RENU K. TAURANI & MRS. VARSHA R. TAURANI. ACCORDING TO THE ADMISSION OF THE APPELLANT, IT HAS GIVEN INTEREST FREE DEPOSIT OF RS.2 CRORES IN F.Y.2002 - 03 AND FURTHER AN AMOUNT OF RS.7 LAKH (SIC. CRORES) IN F.Y.2007 - 08. THE LEAVE & LICENSE AGREEMENT WAS FURTHER EXTENDED FOR 3 YEARS. IT IS VERY OBVIOUS THAT SUCH ADVANCE HAS BEEN GIVEN FROM THE BUSINESS RECEIPTS AS DEMONSTRATED BY THE ASSESSING OFF ICER IN PARA 10.3 OF THE ASSESSMENT ORDER HENCE, THE CONTENTION OF THE APPELLANT THAT SUCH DEPOSITS HAVE BEEN GIVEN OUT OF INTEREST FREE LOANS & ADVANCES OR FROM RESERVES & SURPLUS IS FACTUALLY INCORRECT. THE LD. A.R. HAS NOT REFUTED THE FINDING OF THE ASS ESSING OFFICER IN HIS WRITTEN ARGUMENTS SUBMITTED ON 23.01 . 2017. THE LD. A.R. HAS MERELY DEMONSTRATED THE SHARE CAPITAL AND RESERVES & SURPLUS OF RS.4913.29 LAKHS OF A.Y.2004 - 05 AND RS.7004.22 LAKHS IN A.Y.2008 - 09 AND INTEREST - FREE REFUNDABLE DEPOSIT OF RS .2 CRORES IN A.Y.2004 - 05 AND RS.7 CRORES IN A.Y.2008 - 09 BUT HAS NOT EXPLAINED AS TO HOW SUCH SHARE CAPITAL AND RESERVES & SURPLUS AND REFUNDABLE DEPOSITS WERE GIVEN TO THE WIVES OF DIRECTORS WHEREAS THE ASSESSING OFFICER HAS DEMONSTRATED THAT DEPOSITS HAVE BEEN GIVEN OUT OF BUSINESS RELATED TRANSACTIONS. THE LD. A.R. HAS NOT REFUTED THIS FACTUAL FINDING OF THE ASSESSING OFFICER. THEREFORE, THE REPLY AND REPRESENTATION OF THE APPELLANT IS FOUND TO BE VERY VAGUE AND GENERAL IN NATURE. THE ARGUMENT THAT INTERE ST FR EE DEPOSIT HAS BEEN GIVEN FROM INTEREST FREE FUND, IS OF NO AVAIL BECAUSE NO SUCH TRUTH IS THERE AS SUCH DEPOSIT OF RS.9 CRORES I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 8 | P A G E HAS BEEN GIVEN FROM BUSINESS TRANSACTIONS. IT CAN BE SEEN FROM THE BALANCE SHEET OF F.Y.2007 - 08 THAT SHAREHOLDER'S FUND INC LUDING RESERVES & SURPLUS OF RS.7004.22 LAKHS HAVE BEEN UTILIZED FOR INVENTORY OF RS.2331.83 LAKHS, SUNDRY DEBTORS OF RS.101.81 AND CASH & BANK BALANCE OF RS.3535.43. FURTHER, THE GROSS BLOCK OF ASSETS AS ON 31.03.2008 IS OF RS.1755.73 LAKHS. THUS, IT IS V ERY EVIDENT THAT SHARE CAPITAL AND RESERVES & SURPLUS OF RS.7004.22 LAKHS HAS BEEN UTILIZED. THUS, FOR GIVING ADVANCE OF RS.9 CRORES, THE FUNDS MIGHT HAVE BEEN UTILIZED FROM SECURED LOANS OR FROM BUSINESS TRANSACTIONS. THEREFORE, THE CONTENTION OF THE APPE LLANT THAT SUCH DEPOSIT OF RS.9 CRORES HAS BEEN MADE FROM INTEREST FREE SURPLUS FUND IS FACTUALLY INCORRECT. 7.3. AS REGARDS BUSINESS EXPEDIENCY OF SUCH RENT DEPOSIT, THE APPELLANT HAS NOT EXPLAINED ANYTHING AS TO HOW THERE IS BUSINESS EXPEDIENCY FOR MAKING SUCH DEPOSIT WITH THE WIVES OF DIRECTORS FOR TAKING PREMISES OF DURGA CHAMBERS ON RENT. IT CAN BE SEEN THAT A VERY GOOD MONTHLY RENT OF RS.4,50,000/ - HAS BEEN GIVEN FOR SUCH PREMISES HENCE, THERE IS NO NEED TO GIV E ANY DEPOSIT OF RS.5,50,00,000/ - FO R EACH PREMISE TO BE ENGAGED BY THE WIVES OF THE DIRECTORS NAMELY; MRS. RENU K. TAURANI & MRS. VARSHA R. TAURANI. 7.4. THE RELIANCE PLACED BY LD. A.R. IN THE CASE OF CIT VS. NICOLAS PIRAMAL INDIA LTD.(2016) 239 TAXMAN 470 (BOM) IS NOT APPLICABLE BECAUSE T HE FACTS ARE DIFFERENT. IN THAT CASE, THE ASSESSEE WAS CARRYING ON BUSINESS OF GLASS MANUFACTURING FROM A ESTABLISHED PLANT & MACHINERY AND DURING THE YEAR HAS SET - UP A PLANT &. MACHINERY FOR EXPANSION OF ITS EXISTING BUSINESS. THERE WAS FUNCTIONAL INTEGRI TY BETWEEN 3 BUSINESS NAMELY; PHARMA BUSINESS, BULK DRUG BUSINESS AND GLASS MANUFACTURING BUSINESS WITH INTERLINKING OF SAME MANAGEMENT AND COMMON FUNDS HENCE, INTEREST ON LOANS BORROWED FOR BUSINESS EXPANSION WAS ALLOWED AS DEDUCTION U/S.36(1)(III) OF THE INCOME - TAX ACT, 1961. HERE IS NOT THE CASE LIKE THAT HENCE, RELIANCE OF LD. A.R. IN THIS CASE IS MISPLACED. SIMILARLY, THE FACTS OF THE CASE OF CIT VS. RELIANCE UTILITY POWER LTD. (2009) 313 ITR 340(BOM) IS ALTOGETHER DIFFERENT. IN THAT CASE, IT WAS FOUND BY THE CIT(A) AS WELL AS ITAT THAT INTEREST FREE FUND WAS UTILIZED FOR INVESTMENT IN THE SISTER CONCERNS HENCE, NO DISALLOWANCE COULD BE MADE. IN THAT SET OF FACTS, HON'BLE BOMBAY HIGH COURT HAS HELD THAT NO FAULT COULD BE FOUND IN THE FINDING OF LOWER AU THORITY. HERE IS NOT THE CASE LIKE THAT. SIMILARLY, THE FACTS OF CIT VS. MISS SUSHMA KAPOOR (2009) 319 ITR 299(DELHI) IS ALTOGETHER DIFFERENT. IN THAT CASE, IT WAS FOUND BY THE CIT(A) THAT INTEREST FREE ADVANCES WERE GIVEN BY THAT ASSESSEE IN EARLIER YEARS BEFORE TAKING THE LOAN ON WHICH INTEREST WAS PAID AND THEREFORE, ADVANCES WERE NOT GIVEN OUT OF LOAN TAKEN BY THE ASSESSEE. IN THAT CIRCUMSTANCES, IT WAS HELD BY THE HON'BLE DELHI HIGH COURT THAT THERE WAS NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDE RATION. HERE IS NOT THE CASE LIKE THAT. THUS, NONE OF THE CASES IS APPLICABLE TO THE FACTS OF THE CASE. IN THIS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 9 | P A G E CASE, AS OBSERVED EARLIER, THE APPELLANT HAS NOT DEMONSTRATED IN FACTS OF THE BUSINESS EXPEDIENCY HENCE, AMOUNT/LOAN/FUND DIVERTED TO RELATED PE RSON HAVING ELEMENT OF INTEREST IS TO BE TAKEN INTO CONSIDERATION FOR D ISALLOWANCE. FOR THIS PROPOSITIONS REFERENCE MAY BE HAD OF S.A. BUILDERS LTD. VS. CIT 28 8 ITR 1(SC), MADHAV PRASAD JATIA VS. CIT 118 IT R 200(SC). IT CAN BE SEEN FROM THE SET OF FACTS TH AT IN SPITE OF GIVING GOOD RENT OF RS.4,50,000/ - PER MONTH TO THE WIVES OF THE DIRECTORS, SUCH HUGE AMOUNT OF RS.9 CRORES HAS BEEN GIVEN FOR NO BUSINESS PURPOSES. THUS, FUND HAS BEEN GIVEN TO THE WIVES OF THE DIRECTORS WITHOUT CHARGING OF INTEREST HENCE, C ORRESPONDING INTEREST EXPENDITURE IS DISALLOWABLE. FOR THIS PROPOSALS RELIANCE IS PLACED IN THE FOLLOWING CASE LAWS : - 'HIGHWAYS CONSTRUCTION CO. PVT LTD. VS. CLT(GAU) 199ITR 702 CIT VS. INDIA SILK HOUSE (MAD.) 152 OF THE INCOME - TAX RULE, 1962 79 MAROLIA & SONS VS. CIT(ALL ) 129 OF THE INCOME - TAX RULE, 1962 475 TIRUPATI TRADING CO. VS. CIT(CAL. ) 242 ITR 13 CIT VS. SUJANNI TEXTILES (P) LTD.(MAD - ) 225 ITR 560 CIT VS. P. GANU RAO AND SONS (MAD.) 185 ITR 324' THUS, IN THE LIGHT OF ABOVE, FACTUAL REFERENCES AND JUDICIAL PROPOSALS, THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 1,08,00,000 / - MADE U/S.36(1)(III) IS SUSTAINED. 7.2 . SIMILARLY, THE ASSESSEE ALSO CONTENDED BEFORE LEARNED CIT(A) THAT AN AMOUNT OF RS. 20,00,0 00/ - PAID ON ACCOUNT OF ADVANCE TOWARDS AUDIO RIGHT S IS REVENUE IN NATURE , BY SUBMITTING AS UNDER: - 5.1. IN APPEAL, ON OTHER HAND, IT IS CONTENDED THAT LD. ASSESSING OFFICER HAS WRONGLY DISALLOWED THE GENUINE EXPENDITURE INCURRED DURING THE COURSE OF BUSINESS. IT HAS PAID ADVANCES OF RS.65 L AKHS TO THE FILM PRODUCER, M/S. KARISHMA INTERNATIONAL FOR ACQUISITION OF AUDIO RIGHTS IN F.Y.2002 - 03. IT MAY BE NOTED THAT SUCH ADVANCE IS A BUSINESS ADVANCE HENCE, ALLOWABLE EXPENDITURE. 5.2. THE WRITTEN SUBMISSION OF THE ASSESSEE IS AS UNDER: 3. DISALLOWANCE OF RS.20,00,000/ - ON ACCOUNT OF ADVANCE TOWARDS AUDIO RIGHTS APPELLANT COMPANY HAD PAID ADVANCES OF RS.65,00,000/ - TO THE PRODUCER M/S. KARISHMA INTERNATIONAL FOR ACQUISITION OF AUDIO RIGHTS FOR PROPOSED FEATURE FILMS IN THE FINANCI AL YEAR 2002 - 200 3. IT BE KINDLY NOTED THAT THE AMOUNT HAD BEEN PAID FOR ACQUIRING AUDIO RIGHTS WHICH IS THE BASIC I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 10 | P A G E INGREDIENTS FOR PRODUCTION OF AUDIO CASSETTES WITHOUT WHICH PRE - RECORDED MUSIC CASSETTES OF MOTION PICTURES CANNOT BE MANUFACTURED, AS SUCH, I T IS NOTHING BUT PART AND PARCEL OF RAW MATERIALS USED FOR MANUFACTURING OF THE CASSETTES. IT IS EVIDENT FROM THE LEDGER ACCOUNT OF 'M/S, KARISHMA INTERNATIONAL' THAT THOUGH THE SAID ADVANCE WAS PAID FOR ACQUISITION OF AUDIO RIGHTS TO PRODUCER 'M/S. KARISH MA INTERNATIONAL IN THE FINANCIAL YEAR 2002 - 03, THE AUDIO RIGHTS HAVE NOT BEEN RECEIVED TILL THIS DATE, SINCE THE SAID PRODUCER HAVE NEITHER COMMENCED THE PRODUCTIONS OF THE FEATURE FILMS NOR HAVE COMMENCED PRODUCTION OF ANY OTHER FEATURE FILMS TO ADJUST T HE ADVANCES GIVEN TO THEM. IN FACT THE APPELLANT COMPANY HAD VARIOUS MEETINGS AND DISCUSSIONS WITH THE SAID PARTY M/S. KARISHMA INTERNATIONAL TO RECOVER AN AMOUNT OF RS.65,00,000/ - . FINALLY ON 22 ND MARCH 2004, APPELLANT COMPANY HAS REACHED AN UNDERSTANDI NG TO CREATE LIEN ON OVERSEAS TERRITORY OF THE FEATURE FILM 'D IL CHURAKE CHAL DIYE ' PRODUCED BY THE SAID PARTY M/S. KARISHMA INTERNATIONAL AND ASSIGNED TO M/S. RAMNORD RESEARCH LABORATORIES PVT LTD. IN TERM OF THE SAID LETTER OF UNDERSTANDING DATED 22.3 .2004, IT HAD BEEN MUTUALLY AGREED THAT THE APPELLANT COMPANY HAD LIEN ON THE OVERSEAS TERRITORY OF THE ABOVE SAID FEATURE FILM TO THE EXTENT OF THE AMOUNT OF RS.65,00,000/ - . XEROX COPY OF THE LETTER OF ARRANGEMENT DATED 22.3.2004 HAS BEEN PLACED ON RECO RDS AT THE TIME OF ASSESSMENT PROCEEDINGS. APPELLANT COMPANY ONLY COULD RECOVER AN AMOUNT OF RS.45,00,000 / - FROM THE OVERSEAS RIGHTS OF THE FILM 'SHADI KARKE PHAS GAYA YAAR' FROM REDSUN EXPORTS PV T. LTD., ON BEHALF OF M/S. KARISHMA INTERNATIONAL. COPY O F THE LETTER DATED 31ST JULY 2004 IS PLACED ON RECORDS AT THE TIME OF ASSESSMENT PROCEEDINGS. THEREAFTER, APPELLANT COMPANY RIGOROUSLY FOLLOWED WITH M/S. KARISHMA INTERNATIONAL FOR THE RECOVERY OF BALANCE AMOUNT OF RS.20,00,000/ - BUT THE SAID PARTY EXPRESS ED THEIR INABILITY TO MAKE FURTHER PAYMENTS AS THEY SUFFERED HEAVY LOSSES IN THEIR VARIOUS FILM PRODUCTIONS. IN FACT THE SAID PRODUCTION HOUSE HAD DISCONTINUED THE BUSINESS ACTIVITIES OF FILM PRODUCTION, THEREFORE, THE ADVANCES BECOME IRRECOVERABLE AND HEN CE, THE APPELLANT COMPANY HAD NO OTHER ALTERNATIVE BUT TO CLAIM THE SAID ADVANCES AS REVENUE EXPENDITURE U/S.37(1 ) OF THE I T ACT AND ACCORDINGLY HAS DEBITED THE SAID AMOUNT OF RS.20,00,000/ - TO THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'BAD DEBTS'. IT IS HUMBLY SUBMITTED THAT THE BUSINESS LOSS IS DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND INCIDENTAL TO THE I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 11 | P A G E CARRYING ON THE BUSINESS OF THE APPELLANT COMPANY, HENCE THE SAME BE ALLOWED AS BUSINESS LOSS. IT IS REITERATED THAT 'M/S. KARISHMA INTERNATION AL' HAS DISCONTINUED THE FILM PRODUCTION BUSINESS AND SINCE THE ADVANCE PAYMENT THOUGH INITIALLY WAS TOWARDS ACQUISITION OF AUDIO RIGHTS BUT LATER CONVERTED TO CREATE LIEN ON THE OVERSEAS TRRITORY OF THE FEATURE FILM 'DIL CHURAKE CHAL DIYE' AND THE FACT TH AT ONLY AN AMOUNT OF RS.45,00,000 / - WAS RECOVERED FROM THE OVERSEAS RIGHTS FROM REDSUN EXPORTS P LTD., ON BEHALF OF M/S. KARISHMA INTERNATIONAL. THE BALANCE AMOUNT HAS BECOME IRREC OVERABLE AND TIME BARRED UNDER THE LAW OF LIMITATION ACT, AND THEREFORE, THE SAID AMOUNT CANNOT BE LEGALLY RECOVERABLE FROM THE ABOVE SAID PARTY. THEREFORE, APPELLANT COMPANY HAD NO OTHER ALTERNATIVE BUT TO WRITE OFF THE SAID AMOUNT OF RS.20,00,000/ - AS REVENUE EXPENDITURE U/S.37(1 ) OF THE I T ACT. THE ASSESSEE HAS ALSO PLACED HIS RELIANCE IN THE CASE OF CIT VS. MYSORE SUGAR CO. LTD. 46 ITR 0649(SC). 7.3 THE CONTENTIONS OF THE ASSESSEE WERE REJECTED BY LD. CIT(A) VIDE APPELLATE ORDER DATED 03.07.2017, BY HOLDING AS UNDER: - I HAVE CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AS WELL AS RIVAL SUBMISSION OF THE APPELLANT, CAREFULLY. THE FACTS EMERGED FROM THE CLARIFICATION OF THE APPELLANT IS THAT IT HAS GIVEN AN ADVANCE OF RS.65 LAKHS TO ONE PRODUCER NAMELY; M/S. KARISHMA INTERNATIONAL FOR ACQUISITION OF AUDIO RIGHTS FOR A PROPOSED FEATURE FILMS IN F.Y.2002 - 03. SINCE PRODUCER HAS NOT PRODUCED THE FILM, THE AUDIO RIGHTS WAS NOT RECEIVED. HENCE, ADVANCE WAS NOT ADJUSTED. ON 22.03.2004, THE APPELLANT COMPANY HAD REACHED AN UND ERSTANDING WITH THE PRODUCER TO CREATE AN LIEN ON OVERSEAS TERRITORY OF THE FEATURE FILM 'D IL CHURA KE CHAL DIYE', PRODUCED BY M/S. KARISHMA INTERNATIONAL AND ASSIGNED TO M/S. RAMNORD RESEARCH LABORATORIES PVT. LTD.. AS PER THE LETTER OF ARRANGEMENT DATED 22.03.2004, THE APPELLANT HAS GOT LIEN ON THE OVERSEAS TERRITORY TO THE EXTENT OF RS.65 LAKHS BUT ACCORDING TO THE APPELLANT, IT COULD RECOVER ONLY AN AMOUNT OF RS.45 LAKHS FROM THE OVERSEAS RIGHTS OF OTHER FILM NAMELY, 'SHADI KARKE PHAS GAYA YAAR' FROM M/ S. REDSUN EXPORTS PVT. LTD.. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE HAS SUBMITTED A COPY OF LETTER DATED 21.07.2004. FOR REST OF AMOUNT OF RS.20 LAKHS, IT IS SUBMITTED THAT THE SAME WAS NOT RECOVERED FROM M/S. KARISHMA INTERNATIONAL BECAUSE OF HEAVY L OSS SUFFERED BY THEM. M/S. KARISHMA INTERNATIONAL HAS DISCONTINUED THE BUSINESS ACTIVITIES OF FILM PRODUCTION HENCE, ACCORDING TO THE ASSESSEE, SUCH AN AMOUNT OF RS.20 LAKHS BECOMES BAD DEBT HENCE, ALLOWABLE EXPENDITURE. THIS CONTENTION OF THE APPELLANT IS NOT TENABLE BECAUSE UNDER THE I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 12 | P A G E INCOME - TAX ACT, THE ALLOWABLE BAD DEBT SHO ULD BE ONE WHICH HAS ALREADY BEEN INCLUDED IN THE INCOME IN EARLIER YEAR. SEC.36(VII) R.W.S.36(2) IS VERY SPECIFIC OVER SUCH ISSUE. SINCE THE ASSESSEE HAS NEVER SHOWN AN AMOUNT OF RS. 65 LAKHS OR RS.20 LAKHS AS INCOME FROM EARLIER YEAR, NO SUCH ADVANCE COULD BE ALLOWABLE AS BAD DEBT. THE CONTENTION THAT IT SHOULD BE ALLOWED U/S.37 CAN ALSO NOT BE ACCEPTED BECAUSE OF THE FACTS OF THE CASE. IT CAN BE SEEN FROM THE ADMISSION OF THE APPELLA NT THAT IT HAD GIVEN RS.65 LAKHS TO ONE M/S. KARISHMA INTERNATIONAL FOR AUDIO RIGHTS OF A FILM TO BE PRODUCED. HOWEVER, THE PRODUCTION OF FILM DID NOT MATERIALIZE, AND AS MENTIONED BY THE APPELLANT, M/S. KARISHMA INTERNATIONAL HAD DISCONTINUED ITS PRODUCTI ON BUSINESS HENCE, ADVANCE WAS OUTSTANDING RIGHT FROM F.Y.2002 - 03. SUBSEQUENTLY, THE APPELLANT HAS NEGOTIATED FOR HAVING 'LIEN ON OVERSEAS TERRITORY OF THE FEATURE FILM NAMELY; ' D IL CHURAKE CHAL DIYE' CLAIMED TO BE PRODUCED BY M/S. KAR ISHMA INTERNATIONAL. THIS FILM WAS ASSIGNED TO ONE M/S. RAMNORD RESEARCH LABORATORIES PVT. LTD.. THUS, ACCORDING TO THE MUTUAL ARRANGEMENT, THE ASSESSEE HAS LI EN OVER THE OVERSEAS TERRITORY OF FEATURE FILM 'DIL CHURA KE CHAL DIYE' FOR AN AMOUNT OF RS.65 LAKHS VIDE ARRANGEMENT LETTER DATED 22.05.2004. IT MEANS NATURE OF ADVANCE WAS CHANGED SUBSEQUENTLY AND IT WAS NOT FOR ACQUISITION OF AUDIO RIGHTS OF PROPOSED FILM. OBVIOUSLY, THE APPELLANT HAD TAKEN INTO ACCOUNT, THE FACTS OF THE AGREEMENT FOR HAVING LIEN ON THE OVERSEAS TERRIT ORY ON HIS FEATURE FILM FOR RS.65 LAKHS. ACCORDING TO THE ADMISSION OF THE APPELLANT, IT COULD RECOVER ONLY AN AMOUNT OF RS.45 LAKHS FROM ANOTHER FILM NAMELY, 'SHADI KARKE PHAS GAYA YAAR' THROUGH OTHER COMPANY M/S. REDSUN EXPORTS PVT. LTD.. THEREFORE, IT I S VERY EVIDENT THAT NATURE OF ADVANCE WAS CHANGED. THEREFORE, IN SUCH CIRCUMSTANCES, SUCH ADVANCE WHICH HAS NOT BEEN RECOVERED IS A CAPITAL LOSS. IT CANNOT BE RECORDED AS BUSINESS LOSS. THE FACTS OF THE CASE OF CIT VS. MYSORE SUGAR CO. LTD. 46 ITR 049(SC) IS ALTOGETHER DIFFERENT HENCE, SAME CANNOT BE APPLIED. THE LOSS OF CAPITAL CANNOT BE EQUATED WITH BUSINESS LOSS BECAUSE ACQUIRING OF LIEN ON THE OVERSEAS TERRITORY OF FILM WAS NOT AT ALL THE BUSINESS OF THE APPELLANT IF, THE BUSINESS IS OF MANUFACTURING AN D SALE OF AUDIO CASSETTES, CDS. IF THE MONEY IS ADVANCED OR DEBITED AND LATER ON WRITTEN OFF AS RECOVERABLE IS A LOSS OF CAPITAL AS HELD IN THE CASE OF S.P. SHRIVASTA VA & SONS VS. CIT 86 ITR 730(ALL .), CIT VS. CHIDAMBARANATH MUDLIYAR 240 ITR 552(MAD.) & GR INDWELL NORTON LTD. VS. DCIT IN 91 ITD 412(MUMBAI ITAT). FURTHER, REFERENCE RELIANCE IS ALSO PLACED IN THE CASE OF SALEM MAGNESITE PVT. LTD. VS. CIT 321 ITR 43(BOM). THUS, ADVANCE OF RS.20 LAKHS CLAIMED TO BE IRRECOVERABLE IS A LOSS OF CAP ITAL HENCE, DISAL LOWANCE MADE BY THE ASSESSING OFFICER IS SUSTAINED. 8 . AGGRIEVED BY THE APPELLATE ORDER DATED 03.07.2017 PASSED BY LEARNED CIT(A), THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL CHALLENGING APPELLATE ORDER OF LEARNED CIT(A) ON BOTH THE AFORESAID ISS UE . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 13 | P A G E MANUFACTURING AND SALE OF AUDIO C ASSETTES & CD S, P RODUCTION AND DISTRIBUTION OF FEATURES FILM. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE PAID RS. 65,00,000/ - TO M/S. K A RISHMA INTERNATIONAL TO ACQUIRE AUDIO RIGHTS FOR THE NEW FILM TO BE PRODUCED BY K A RISHMA INTERNATIONAL BUT THE SAID M/S KARISHMA INTERNATIONAL COULD NOT PRODUCE THE FILM DUE TO LOSSES AND CLOSURE OF BUSINESS . IT WAS SUBMITTED THAT THE ASSESSEE IN ORDER TO SECURE ITS BUSINESS INTEREST S GOT M/S. K A RISHMA INTERNATIONAL TO CREATE LIEN ON THE OVERSEAS RIGHTS OF ANO THER FILM DIL CHURAKE CHAL DIYE WHICH WAS LATER RENAMED AS SHAADI KAR KE PHAS GAYA YAAR . IT WAS SUBMITTED THAT M/S. REDS U N EXPORTS P. LTD. WAS UNDER LIABILITY TO PAY TO THE ASSESSEE TO THE TUNE OF RS. 65,00,000/ - UNDER THIS AGREEMENT ON AND BEHALF OF M/S KARISHMA INTERNATIONAL AND IT WAS SUBMITTED THAT ULTIMATELY AN AMOUNT OF RS. 45,00,000/ - COULD BE RECOVERED FROM M/S KAR ISHMA INTERNATIONAL THROUGH REDSUM EXPORTS PRIVATE LIMITED , WHILE REST OF THE AMOUNT OF RS. 20,00,000/ - WAS WRITTEN OFF AS BUSINESS LOSS BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS . OUR ATTENTION WAS ALSO DRAWN TO PAGE NO. 75 OF THE PAPER BOOK FILED BY THE ASSESSEE WITH THE TRIBUNAL WHEREIN LET TER FROM M/S. K A RISHMA INTERNATIONAL TO M/S. RAMNORD RESEARCH LABORATORIES P. LTD., DATED 22.03.2004 IS PLACED WHEREIN OVERSEAS LIEN IS CREATED FOR RS. 65,00,000/ - WITH RESPECT TO F ILM DIL CHURAK E CHAL DI YE IN FAVOUR OF THE ASSESSEE. O UR ATTENTION WAS DRAWN TO PAGE NO. 76 OF THE PAPER BOOK WHEREIN M/S. RAMNORD RESEARCH LABORATORIES P. LTD., VIDE LETTER DATE D 08.04.2004 HAS CREATED CHARG E WITH RESPECT TO PICTURE DIL C HURAKE CHAL DIYE IN FAVOUR OF THE ASSESSEE TO THE TUNE OF RS. 65.0 LACS . OUR ATTENTION WAS ALSO DRAWN TO PAGE NO. 81 OF THE PAPER BOOK FILED WITH THE TRIBUNAL WHEREIN LETTER DATED 31.07.2006 WRITTEN BY THE ASSESSEE IN FAVOUR OF M/S. RAMNORD RESEARCH LABORATORIES P. LTD., IS PLACED , WHEREIN THE ASSESSEE HAS ACKNOWLEDGED TO HAVE R ECEIVED RS. 45,00,000/ - FROM M/S REDSUN EXPORTS PRIVATE LIMITED FOR AND ON BEHALF OF KARISHMA INTERNATIONAL AGAINST THE LAB LETTER ISSUED BY SAID M/S RAMNORD RESEARCH LABORATORIES PRIVATE LIMITED IN FAVOUR OF THE ASSESSEE ON THE FILM SHADI KARKE PHAS GAYA YAAR FOR THE OVERSEAS TERRITORY, INSTEAD OF RS. 65,00,000/ - BEFORE THE RELEASE OF THE FILM SHADI KARKE PHAS GAYA YAAR AND THE ASSESSEE GRANTED P ERMISSION TO SAID RAMNORD RESEARCH LABORATORIES P. LTD. TO DELIVER FILM PRINT OF SHAADI KARKE PHAS GAYA YAAR FOR OVERSEAS TERRITORY . I T IS ALSO EXPLAINED IN THIS LETTER THAT THE EARLIER NAME OF THE FILM DIL C HURAKE CHAL DIYE WAS LATER CHANGE D TO SHAD I KARKE PHAS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 14 | P A G E GAYA YAAR. OUR ATTENTION WAS ALSO DRAWN TO PAGE NO. 82 WHEREIN COPY OF CHEQUE DATED 29.07.2006 OF RS. 45,00,000/ - IN FAVOUR OF THE ASSESSEE F ROM M/S. REDSUN EXPORTS P. LTD. DRAWN ON VIJAYA BANK , HILL ROAD, BANDRA (W), MUMBAI IS PLACED. OUR A TTENTION WAS ALSO DRAWN BY LEARNED COUNSEL FOR THE ASSESSEE TO PAGE 69 OF THE PAPER BOOK WHEREIN LEDGER ACCOUNT OF M/S. K A RISHMA INTERNATIONAL IS PLACED . O UR ATTENTION IS DRAWN TO PAGE NO. 138 OF THE PAPER BOOK WHEREIN APPELLATE ORDER OF THE ITAT , MUMBAI BENCH IN ITA NO. 1894/MUM/2017 FOR AY 2010 - 11 , ORDER DATED 06.08.2018 IN ASSESSEE S OWN CASE IS PLACED, WHEREIN IT IS HELD BY TRIBUNAL THAT THE EXPENDITURE INCURRED FOR P URCHASE OF AUDIO VID EO RIGHTS IS REVENUE IN NATURE. IT WAS SUBMITTED THAT THE REGULA R BUSINESS OF THE ASSESSEE IS TO DEAL WITH MANUFACTURING AND SALE OF AUDIO C ASSETTE S , CDS, PRODUCTION AND DISTRIBUTION OF FEATURE FILMS. IT WAS SUBMITTED THAT THESE ARE NORMAL BUSINESS EXPENSES AND THE LOSS INCURRED IS BUSINESS LOSS OR ELSE IT SHOULD BE TR EATED AS BA D DEBT OF THE ASSESSEE COMPANY . THUS IT WAS PRAYED BY LEARNED COUNSEL FOR THE ASSESSEE THAT THE SAID LOSS OF RS. 20 LACS BE ALLOWED AS DEDUCTION FROM BUSINESS INCOME EITHER AS BUSINESS LOSS OR BAD DEBTS. IT WAS SUBMITTED THAT LEARNED CIT(A) DID NOT ALLOW ED THE SAME AS BAD DEBT ON THE GROUND THAT THE ASSESSEE DID NOT SHOWED THE SAID AMOUNT AS INCOME IN EARLIER YEARS. IT WAS SUBMITTED THAT LEARNED CIT(A) TREATED THIS ADVANCE WRITTEN OFF AS CAPITAL LOSS . IT WAS SUBMITTED THAT THE SAID AMOUNT WAS PAID BY ASSESSEE IN ORDINARY COURSE OF ITS BUSINESS AND THE OTHER PARTY COULD NOT FULFIL ITS BUSINESS COMMITMENT AND HENCE IT SHOULD BE ALLOWED AS BUSINESS LOSS. THE ASSESSEE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HARSHAD J. CHO KSI V. CIT REPORTED IN (2012) 349 ITR 250 (BOM). 8.2 ON THE SECOND ISSUE , IT WAS SUBMITTED BY LEARNED COUNSEL FOR THE ASSESSEE THAT L EAV E & L ICENSE AGREEMENT FOR TAKING COMMERCIAL PREMISES BEARING NUMBER 501 - 601, DURGA CHAMBERS, 278/E, LINKIN G ROAD, KHAR WEST, MUMBAI 400052 ON LEAVE AND LICENCE BASIS WAS ENTERED INTO BY THE ASSESSEE WITH WIVES OF DIRECTORS OF THE ASSESSEE COMPANY AGAINST WHICH INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9,00, 00,000/ - WAS GIVEN BY THE ASSESSEE TO SAID WIVES OF THE DIRECTO R OF THE ASSESSEE COMPANY . OUR ATTENTION WAS DRAWN TO THE PARA 10 ON PAGE NO. 19 OF THE ASSESSMEN T ORDER . I T WAS ALSO SU BMITTED THAT NO DISALLOWANCE WERE MADE IN THE EARLIER YEAR S IN ASSESSMENT FRAMED BY THE AO U/S 143(3) OF THE 1961 ACT . OUR ATTENTION WA S I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 15 | P A G E ALSO DRAWN TO PAPER BOOK/PAGE 43 - 65 WHEREIN ASSESSMENT ORDERS FOR AY 2004 - 05, 2008 - 09,2009 - 10 AND 2010 - 11 ARE PLACED IN PAPER BOOK FILED BY THE ASSESSEE WITH TRIBUNAL , WHEREIN NO ADDITIONS WERE MADE BY THE AO ON THIS ISSUE IN ALL THESE ASSESSMENT YEARS . OUR ATTENTION WAS ALSO DRAWN TO APPELLATE ORDER PASSED BY LEARNED CIT(A). IT WAS SUBMITTED THAT RS. 9,00,00,000/ - WAS PAID IN EARLIER YEARS AND NO PAYMENTS WERE MADE IN THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED THAT RS. 2.00 CRORES WAS PAID IN PREVIOU S YEAR 2003 - 04 RELEVANT TO AY 2004 - 05 WHILE RS. 7 CRORES STOOD PAID IN PREVIOUS YEAR 2006 - 07 AND 2007 - 08 RELEVANT TO AY 2007 - 08 AND 2008 - 09 RESPECTIVELY . THUS, IT WAS CLAIMED THAT ENTIRE AMOUNT OF RS. 9 CRORES AS INTEREST FREE REFUNDABLE RENT DEPOSITS WERE PAID IN EARLIER YEARS AND NO INTEREST FREE RENT DEPOSIT WAS PAID DURING THE YEAR UNDER CONSIDERATION. OUR ATTENTION WAS DRAWN TO LEDGER ACCOUNT OF RENT DEPOSIT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY FROM 01.04.2003 TO 31.03.2013 TO CONTEND THAT THIS RENT DEPOSIT OF RS. 9 CRORES WITH RESPECT TO THESE COMMERCIAL PROPERTIES WERE PAID TO WIVES OF DIRECTOR OF THE ASSESSEE COMPANY IN EARLIER YEARS AND NO DEPOSIT WAS MADE DURING THE YEAR UNDER CONSIDERATION . IT WAS SUBMITTED THAT INTEREST FREE OWN FUNDS AVAILABLE WITH THE ASSESSEE COMPANY WERE SUFFICIENT TO MAKE THESE INTEREST FREE REFUNDABLE SECURITY DEPOSITS OF RS. 9.00 CRORES EVEN IN THOSE YEARS WHEN PAYMENTS WERE MADE AS WELL IN THE YEAR UNDER CONSIDERATI ON WHEREIN INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS HIGHER THAN THE SAID INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 900 LACS . OUR ATTENTION WAS DRAWN TO A UDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY FOR FINANCIAL YE AR 2003 - 04, 2007 - 08, 2008 - 09 , 2009 - 10 , 2010 - 11 , 2011 - 12 AND 2012 - 13 WHICH ARE ALL PLACED IN PAPER BOOK AT PAGE 6 - 22. OUR ATTENTION WAS ALSO DRAWN TO STATEMENT OF NET WORTH OF THE ASSESSEE COMPANY FROM FINANCIAL YEAR 2004 - 05 TO 2014 - 15, WHICH IS PLACED I N PAPER BOOK/PAGE 5. THESE EVIDENCES ARE FILED BY THE ASSESSEE TO SUBSTANTIATE THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE HIGHER THAN INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 900 LACS. THE RELIANCE WAS PLACED BY LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(SUPRA ) AND CONTENTIONS WERE MADE THAT PRESUMPTION WILL APPLY THAT THE ASSESSEE MADE THE PAYMENTS OUT OF OWN INTEREST FREE FUNDS AVAILABLE WITH IT . IT IS SUBMITTED THAT SIMILAR ADDITIONS WERE MADE IN AY 2012 - 13 AND 2013 - 14 WHEREIN THE ASSESSEE HAS FILED AN I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 16 | P A G E APPEAL BEFORE THE T RIBUNAL WHICH IS TAGGED WITH THIS APPEAL OF THE ASSESSEE FOR AY 2011 - 12 AND IT IS CLAIMED THAT SIMILAR CONTENTIONS AS WERE MAD E FOR THIS YEAR SHALL APPLY TO THOSE TWO YEARS WHICH ARE ALSO BEFORE THE TRIBUNAL. IT WAS SUBMITTED THAT AUDITED BALANCE SHEET, PROFIT AND LOSS AND NET WORTH FIGURES FOR THOSE YEARS ARE ALSO FILED IN PAPER BOOK WHICH IS REFERRED TO ABOVE BY LEARNED COUNSE L FOR THE ASSESSEE IN HIS ARGUMENTS BEFORE THE TRIBUNAL . 9 . THE LD. DR ON THE OTHER HAND SUBMITTED THAT ADDITIONS OF RS. 20,00,000/ - WAS MADE ON THE GROUNDS THAT THIS LOSS WAS A CAPITAL LOSS AND CANNOT BE ALLOWED AS REVENUE LOSS OR BAD DEBT . IT WAS SUBMI TTED THAT THE SAID SUM WAS NEVER INCLUDED WHILE COMPUTING INCOME OF THE ASSESSEE CHARGEABLE TO TAX AND HENCE THE SAME CANNOT BE ALLOWED AS BAD DEBT . THE LEARNED DR WOULD RELY ON THE ORDERS OF THE AO AND LD. CIT(A) . 9.2 W ITH RESPECT TO GROUND NO. 2 , THE LE ARNED DR AGAIN PLACED RELIANCE ON THE ASSESSMENT ORDER PASSED BY LEARNED AO AND THE APPELLATE ORDER PASSED BY LEARNED CIT(A). IT WAS SUBMITTED THAT THE CASE LAWS RELIED UPON BY THE ASSESSEE WERE DISTINGUISHED BY LEARNED CIT(A). 1 0 . WE HAVE CONSIDERED RIV AL CONTENTIONS AND CAREFULLY PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAW. W E HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF A UDIO C ASSETTES & CD S , P RODUCTION AND DISTRIBUTION OF FEATURE FILM S . 10.1 ON THE FIRST ISSUE OF DISALLOWANCE OF RS. 20 LACS PAID TO M/S. KARISHMA INTERNATIONAL, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW , MATERIAL PLACED IN PAPER BOOK FILED BY THE ASSESSEE WITH THE TRIBUNAL AND CONTENTIONS ADVANCE D BY RIVAL PARTIES BEFORE THE BENCH . THE ASSESSEE HAS FILED PAPER BOOK CONTAINING IN ALL 140 PAGES WHICH IS PLACED IN FILE. WE HAVE OBSERVED THAT CLAIMS IS MADE BY THE ASSESSEE THAT THE PAYMENT OF RS. 65 LACS WAS MADE TO M/S KARISHMA INTERNATIONAL TOWARDS AC QUIRING AUDIO RIGHTS OF THE PROPOSED FEATURE FILM WHICH COULD NOT BE ULTIMATELY PRODUCED BY SAID KARISHMA INTERNATIONAL OWING TO FINANCIAL DIFFICULTIES AND CLOSURE OF ITS BUSINESS , WHICH LED ASSESSEE TO CLAIM THIS AMOUNT AS BUSINESS LOSS . IT IS SUBMITT ED BEFORE US THAT IN ORDER TO SECURE ITS BUSINESS INTEREST, IT CREATED LIEN OVER OVERSEAS RIGHTS OF THE MOVIE DIL CHURAKE CHAL DIYE ( WHICH WAS LATER TITLED AS 'SHADI KARKE PHAS GAYA YAAR' ) PRODUCED BY M/S KARISHMA INTERNATIONAL . IT IS CLAIMED THAT T HE ASSESSEE COULD RECOVER ONLY RS. 45 LACS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 17 | P A G E AS AGAINST AN AMOUNT OF RS. 65 LACS RECOVERABLE FROM M/S KARISHMA INTERNATIONAL WHILE LIFTING LIEN ON THE OVERSEAS RIGHTS OF THE FILM DIL CHURAKE CHAL DIYE ( WHICH WAS LATER TITLED AS 'SHADI KARKE PHAS GAYA YAAR ' ), WHILE REST OF THE AMOUNT OF RS. 20 LACS COULD NOT ULTIMATELY BE RECOVERED AND WAS CLAIMED AS BUSINESS LOSS BY THE ASSESSEE DURING THE IMPUGNED ASSESSMENT YEAR OR IN ALTERNATIVE CLAIM IS MADE BY THE ASSESSEE TO ALLOW THE SAID AMOUNT OF RS. 20 LACS AS BA D DEBTS U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE 1961 ACT . THE CONTENTIONS OF THE REVENUE IN REJECTING THE CLAIM OF THE ASSESSEE IS THAT THIS PAYMENT TOWARDS ACQUIRING AUDIO RIGHTS OF THE PROPOSED FEATURE FILM GOT CHANGED TO OVERSEAS RIGHTS OF THE FEATURE FILM DIL CHURAKE CHAL DIYE , WHICH IS C APITAL IN NATURE AND LOSS THERE OF IS CAPITAL LOSS WHICH CANNOT BE ALLOWED AS REVENUE LOSS WHILE COMPUTING INCOME OF THE ASSESSEE . IT WAS HELD BY LEARNED CIT(A) THAT THE BUSINESS OF THE ASSESSEE IS NOT TO DE AL IN THE OVERSEAS RIGHTS OF THE FEATURE FILM AND NON RECOVERABILITY OF MONEY IS LOSS OF CAPITAL AND CANNOT BE ALLOWED AS REVENUE LOSS AS IT IS A CAPITAL LOSS. IT IS ALSO AVERRED BY REVENUE THAT THE SAID AMOUNT OF RS. 65 LACS WHICH WAS ADVANCED BY THE ASSES SEE OR AN AMOUNT OF RS. 20 LACS WHICH ULTIMATELY COULD NOT BE RECOVERED BY THE ASSESSEE , WAS NOT INCLUDED BY THE ASSESSEE AS ITS INCOME WHILE COMPUTING INCOME CHARGEABLE TO TAX IN EARLIER YEARS OR EVEN DURING THE IMPUGNED ASSESSMENT YEAR , THUS SUCH ADVAN CE OF MONEY CANNOT BE ALLOWED EVEN AS BAD DEBT UNDER THE PROVISIONS OF THE 1961 ACT. 10.2 T HE TRIBUNAL IS THE LAST FACT FINDING AUTHORITY AND IS OBLIGATED TO APPRECIATE COMPLETE FACTS ON RECORD BEFORE ARRIVING AT ITS CONCLUSIONS. THUS, WE ARE UNDER OBLIGA TION AND HEAVY DUTY IS CAST ON US TO SEE AND APPRECIATE ENTIRE FACTS ON RECORD AND THEN ARRIVE AT OUR DECISION BASED ON FACTS AND LAW . 10.3 AT THIS STAGE , WE WOULD LIKE TO REFER TO PAPER BOOK FILED BY THE ASSESSEE WHICH WE HAVE CAREFULLY GONE THROUGH . TH E LEDGER ACCOUNT OF M/S KARISHMA INTERNATIONAL FROM 01.04.1999 TO 31.03.2011 IN THE BOOKS OF THE ASSESSEE COMPANY IS PLACED IN PAPER BOOK AT PAGE 66 - 69, WHICH IS REPRODUCED HEREUNDER: I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 18 | P A G E I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 19 | P A G E 10.4 BEFORE WE PROCEED FURTHER, IT IS IMPORTANT TO REPRODUCE HEREUNDER AGREEMENT OF ARRANGEMENT DATED 2 ND MARCH 2004 ENTERED INTO BETWEEN AND BY ASSESSEE AND THE M/S KARISHMA INTERNATIONAL TO RESOLVE THEIR DIFFERENCES AND DISPUTES WHICH AROSE IN CONTEXT OF AND IN IMPLEMENTING ORIGINAL AGREEMENT DATED 9 TH JUNE 1999. INCIDENTALLY THE ASSESSEE HAS NOT PRODUCED I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 20 | P A G E ORIGINAL AGREEMENT DATED 09 TH JUNE 1999 WHICH WAS ENTERED INTO BY AND BETWEEN THE ASSESSEE AND SAID M/S . KARISHMA INTERNATIONAL. THE SAID AGREEMENT OF ARRAN GEMENT DATED 02 ND MARCH 2004 ENTERED INTO BY AND BETWEEN ASSESSEE AND M/S KA RISHMA INTERNATIONAL TO RESOLVE AND SETTLE THEIR DISPUTES AND DIFFERENCES IS PLACED IN PAPER BOOK FILED WITH TRIBUNAL AT PAGE 70 - 74 , WHICH IS REPRODUCED HEREUNDER: I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 21 | P A G E I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 22 | P A G E I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 23 | P A G E I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 24 | P A G E I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 25 | P A G E 10.5 PERUSAL OF THE AFORESAID L EDGER ACCOUNT OF M/S. KARISHMA INTERNATIONAL IN BOOKS OF ACCOUNTS OF THE ASSESSEE AS WELL AGREEMENT OF ARRANGEMENT DATED 02.03.2004 TO SETTLE AND RESOLVE DISPUTES AND DIFFERENCE BETWEEN ASSESSEE AND M/S KARISHMA INTERNATIONAL AND OTHER RELEVANT DOCUMENTS AS ARE ON RECORD IN PAPER BOOK ARE TO BE READ IN CONJUNCTION, WHICH IS DONE BY US AS HEREUNDER TO APPRECIATE AND CULLED OUT THE FACTS PROPERLY : A ) THE ASSESSEE AND M/S KARISHMA INTERNATIONAL ORIGINALLY ENTERED IN TO AN AGREEMENT DATED 09.06.1999 WITH RESPECT TO GRANT OF AUDIO RIGHTS IN FEATURE F ILM DIL CHURAKE CHAL DIYE PRODUCED BY KARISHMA INTERNATIONAL IN FAVOUR OF THE ASSESSEE , WHICH IS EMANATING FROM AGREEMENT OF ARRANGEMENT DATED 02.03.2004 WHICH IS PLACE D ON RECORD BY THE ASSESSEE . THE SAID ORIGINAL AGREEMENT DATED 09.06.1999 ENTERED INTO BY THE ASSESSEE AND M/S KARISHMA INTERNATIONAL IS NOT PLACED ON RECORD. THE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 ENTERED INTO BY AND BETWEEN ASSESSEE AND KARISHMA INTERNATIONAL IS TO SETTLE AND RESOLVE DISPUTES AND DIFFERENCES WHICH AROSE BETWEEN ASSESSEE AND M/S KARSIHMA INTERNATIONAL OVER A PERIOD OF TIME IN RELATION TO FEATURE FILM DIL CHURAKE CHAL DIYE. PERUSAL OF THE LEDGER ACCOUNT OF M/S KARISHMA INTERNATION AL IN THE BOOKS OF ASSESSEE WILL REVEAL THAT FIRST PAYMENT OF RS. 30 LACS WAS MADE BY THE ASSESSEE TO M/S KARISHMA INTERNATIONAL ON 09 TH JUNE 1999 ITSELF I.E. THE DATE OF ORIGINAL AGREEMENT DATED 09.06.1999 . B ) THERE AROSE SOME DISPUTES AND DIFFERENCES BETWEE N ASSESSEE AND M/S KARISHMA INTERNATIONAL WHILE IMPLEMENTING ORIGINAL AGREEMENT DATED 09.06.1999 RELATING TO FILM DIL CHURAKE CHAL DIYE. . THE COMPLAINT WAS ALSO FILED BY THE ASSESSEE WITH M/S FILM COMBINE AGAINST SAID M/S KARISHMA INTERNATIONAL. THE DI SPUTES AND DIFFERENCES BETWEEN THE ASSESSEE AND M/S KARISHMA INTERNATIONAL STOOD RESOLVED VIDE THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004. C ) THERE WERE THREE MORE PARTIES FOUND MENTIONED IN THE SAID AGREEMENT OF ARRANGEMENT DATED 02.03.2004 WHO WERE HAVI NG DISPUTES AND DIFFERENCES WITH M/S KARISHMA INTERNATIONAL NAMELY MRS. RENU K TAURANI , MRS. VARSHA R. TAURANI AND DASMESH I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 26 | P A G E INTERNATIONAL LIMITED , WHOSE DISPUTES AND DIFFERENCES WITH M/S KARISHMA INTERNATIONAL ALSO STOOD RESOLVED AS MENTIONED IN THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 . INCIDENTALLY AS WE HAVE SEEN WITH RESPECT TO OTHER ISSUE IN THIS APPEAL WITH RESPECT TO INTEREST FREE REFUNDABLE RENT DEPOSIT GIVEN BY THE ASSESSEE , THE SAID MRS RENU K TAURANI AND MRS VARSHA R TAURANI HAPPENS TO BE WIVES OF DIRECTORS OF THE ASSESSEE COMPANY. D ) THE TOTAL CONSIDERATION STIPULATE D IN THE ORIGINAL AGREEMENT DATED 09.06.1999 SIGNED BY THE ASSESSEE WITH M/S KARISHMA INTERNATIONAL WAS RS. 280 LACS FOR ACQUIRING AUDIO RIGHTS OF THE MOVIE DIL CHURAKE CHAL DIYE (MOVIE RENAMED LATER TO SHAADI KAR KE PHAS GAYA YAAR) . NOW, WITH MUTUAL CONSENT OF BOTH THE PARTIES AGREED VIDE THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 , THE CONSIDERATION FOR ACQUISITION OF AUDIO RIGHTS OF FEATURE FILM DIL CHURAKE C HAL DIYE STAND REDUCED TO RS. 55 LACS AS AGAINST ORIGINAL AGREED CONSIDERATION AMOUNT OF RS. 280 LACS OWING TO SEVERAL CIRCUMSTANCES AND EVENTS INCLUDING SLUMP IN THE FILM MARKET. E ) IT IS ALSO MENTIONED IN THE SAID AGREEMENT OF ARRANGEMENT DATED 02.03.2004 THAT THE ASSESSEE HAS ALREADY PAID TO M/S KARISHMA INTERNATIONAL AN AGGREGATE SUM OF RS. 130 LACS AS OF DATE TOWARDS THE CONSIDERATION ORIGINALLY PAYABLE UNDER THE AGREEMENT DATED 09.06.1999. PERUSAL OF LEDGER ACCOUNT OF KARISHMA INTERNATIONAL IN THE BOO KS OF THE ASSESSEE WILL REVEAL THAT THE ASSESSEE HAD INFACT MADE PAYMENT OF RS. 130 LACS AS OF 02.03.2004, WHICH IS THE DATE OF ENTERING INTO AN AGREEMENT OF ARRANGEMENT BETWEEN ASSESSEE AND M/S KARISHMA INTERNATIONAL. F ) IT IS ALSO AGREED VIDE THIS AGREEME NT OF ARRANGEMENT DATED 02.03.2004 THAT THE ASSESSEE WILL PAY TO M/S KARISHMA INTERNATIONAL ADDITIONALLY AN ADVANCE OF RS. 100 LACS REFUNDABLE IN THE MANNER STIPULATED IN THIS AGREEMENT. AS PART OF THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 VIDE ANNE XURE - A , THE DETAILS OF 10 POST DATED CHEQUES OF RS. 10 LACS EACH , ALL DRAWN ON UTI BANK LIMITED , ANDHERI BRANCH, MUMBAI ISSUED BY SAID M/S KARISHMA INTERNATIONAL IN FAVOUR OF THE ASSESSEE TOWARDS REFUND OF AFORESAID ADVANCE OF RS. 100 LACS STOOD ALSO MEN TIONED . I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 27 | P A G E G ) THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 ALSO PROVIDES THAT THE ASSESSEE HAD ADDITIONAL LY AGREED TO PAY RS. 45 LACS EACH TO MRS. RENU K. TAURANI AND TO MRS. VARSHA K. TAURANI , AGGREGATING TO RS. 90 LACS. FURTHER, IT WAS AGREED BY THE ASSESSE E TO PAY RS. 70 LACS TO MEGA BOLLYWOOD PRIVATE LIMITED. NOW, UNDER THIS SETTLEMENT AGREEMENT DATED 02.03.2004 , IT IS AGREED BETWEEN THE ASSESSEE AND M/S KARISHMA INTERNATIONAL THAT THE ASSESSEE WILL PAY RS. 45 LACS EACH TO MRS. RENU K. TAURANI AND TO MRS. VARSHA K. TAURANI , AGGREGATING TO RS. 90 LACS, OUT OF THE AFORESAID ADVANCE OF RS. 100 LACS AGREED BY ASSESS EE TO BE PAID TO M/S KARISHMA INTERNATIONAL AS REFUNDABLE ADVANCE VIDE THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 , AT THE TIME OF EFFECTING OF DELIVERY TO ASSESSEE BY KARISHMA INTERNATIONAL OF MASTER TAPES/ORIGINAL RECORDING TRACKS(DATS.) CONTAINING A LL SONGS, DIALOGUES AND MUSICAL WORKS OF THE SAID PICTURE DIL CHURAKE CHAL DIYE . THE SAID M/S KARISHMA INTERNATIONAL AGREED TO DELIVER TO ASSESSEE AFORESAID MASTER TAPES/ORIGINAL RECORDING TRACKS ETC ON SIGNING OF THIS AGREEMENT OF ARRANGEMENT DATED 02.0 3.2004 . THE SAID M/S KARISHMA INTERNATIONAL AGREED AND ASSURED ASSESSEE VIDE THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 TO RELEASE THE FILM DIL CHURAKE CHAL DIYE IN THE MONTH OF JULY 2004. THE AUTHORITIES BELOW HAD NOT SEEN WHETHER THE ASSESSEE HAD P AID THIS ADDITIONAL ADVANCE OF RS. 100 LACS OUT OF WHICH RS. 90 LACS WERE DISBURSED TO WIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY BY ASSESSEE FOR AND ON BEHALF OF KARISHMA INTERNATIONAL TO SETTLE AND RESOLVE THEIR INTER - SE DISPUTE WITH KARISHMA INTERNA TIONAL , AROSE FROM CONTRACTUAL , COMMERCIAL AND LEGAL BOUNDATION OF THE ASSESSEE TO SUB - SERVE THE BUSINESS INTEREST OF THE ASSESSEE OR WAS AN AMOUNT OF RS.90 LACS DISBURSED GRATUITOUSLY TO PROTECT THE INTEREST OF WIVES OF DIRECTORS OF THE ASSESSEE BECAUSE ALREADY THE SAID KARISHMA INTERNATIONAL WAS HOLDING EXCESS PAYMENT OF RS. 75 LACS OWING TO REDUCED CONSIDERATION OF AUDIO RIGHTS OF THE FEATURE FILM DIL CHURAKE CHAL DIYE. H ) IT WAS FURTHER AGREED VIDE THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 THAT T HE ASSESSEE WILL NOT BE REQUIRED TO PAY RS. 70 LACS TO M/S MEGA BOLLYWOOD PRIVATE LIMITED FOR WHICH SAID M/S I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 28 | P A G E KARISHMA INTERNATIONAL AGREED TO OBTAIN CONFIRMATION OF WAIVER FROM SAID M/S MEGA BOLLYWOOD PRIVATE LIMITED . I ) THIS ASPECT OF FURTHER RELEASE OF RS. 100 LACS AS AN ADDITIONAL ADVANCE TO BE PAID BY THE ASSESSEE TO M/S KARISHMA INTERNATIONAL AND TO EFFECT THE RELEASE OF ADDITIONAL ADVANCE OF RS. 100 LACS , THE ASSESSEE AGREEING TO MAKE PAYMENT OF RS. 90 LACS IN AGGREGATE TO MRS RENU K TAURANI AND MRS VA RSHA R TAURANI , BOTH WIVES OF DIRECTORS OF THE ASSESSEE COMPANY WAS NOT EXPLAINED BY THE ASSESSEE NOR LOOKED INTO BY AUTHORITIES BELOW AS DISCUSSED ABOVE . THE FATE OF CLEARANCE OF 10 CHEQUES OF RS. 10 LACS EACH GIVEN BY M/S KARISHMA INTERNATIONAL TO THE ASSESSEE TO ENSURE REFUND OF AFORESAID ADDITIONAL ADVANCE OF RS. 100 LACS WAS ALSO NOT EXPLAINED BY THE ASSESSEE NOR LOOKED INTO BY AUTHORITIES BELOW. J ) AS NOTED ABOVE, THE CONSIDERATION FOR ACQUISITION OF AUDIO RIGHTS OF FEATURE FILM DIL CHURAKE CHAL DIYE WAS REDUCED TO RS. 55 LACS FROM RS. 280 LACS, OWING TO SEVERAL FACTORS INCLUDING SLUMP IN FILM MARKET. BY THIS TIME WHEN AGREEMENT FOR ARRANGEMENT WAS ENTERED INTO ON 02.03.2004 BY THE ASSESSEE AND M/S KARISHMA INTERNATIONAL, THE ASSESSEE HAD ALREADY ADV ANCED RS. 130 LACS TOWARDS ACQUIRING AUDIO RIGHTS OF FEATURE FILM DIL CHURAKE CHAL DIYE LEAVING A REFUNDABLE EXCESS AMOUNT OF RS. 75 LACS. OUT OF RS. 100 LACS AS FRESH ADDITIONAL REFUNDABLE ADVANCE WHICH ASSESSEE AGREED TO RELEASE TO KARISHMA INTERNATION AL, RS. 90 LACS WERE PAID TO MRS RENU K TAURANI AND MRS VARSHA R TAURANI, WIVES OF DIRECTORS TO SETTLE THEIR INTER - SE DISPUTES AND DIFFERENCES WITH M/S KARISHMA INTERNATIONAL. WHETHER THE SAID ADVANCES WERE RELEASED KEEPING IN VIEW COMMERCIAL EXPEDIENCY OR WAS A GRATUITOUS PAYMENT HAS NOT BEEN VERIFIED BY THE AUTHORITIES BELOW. THE SAID ADVANCE WAS SECURED BY REFUND CHEQUES OF RS. 100 LACS ISSUED BY M/S KARISHMA INTERNATIONAL IN FAVOUR OF THE ASSESSEE AND WHETHER THESE CHEQUES STOOD CLEARED FROM BANK ALSO H AS NOT BEEN VERIFIED BY THE AUTHORITIES BELOW. THE BALANCE OF RS. 10 LACS ADVANCE OUT OF FRESH ADVANCE OF RS. 100 LACS GRANTED BY ASSESSEE TO M/S KARSIHMA INTERNATIONAL WAS ADJUSTED AGAINST RS. 75 LACS NOW RECOVERABLE OWING TO EXCESS ADVANCE KEEPING IN VIEW REDUCED CONSIDERATION OF RS. 55 LACS FOR ACQU ISITION OF AUDIO RIGHTS OF THE I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 29 | P A G E FEATURE FILM DIL CHURAKE CHAL DIYE , VIDE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 , INSTEAD OF ORIGINAL AGREED CONSIDERATION OF RS. 280 LACS VIDE ORIGINAL AGREEMENT DATED 09.06.1999. THIS LEFT THE BALANCE RECOVERABLE OF RS. 65 LACS BY ASSESSEE FROM M/S KARISHMA INTERNATIONAL. THE ASSESSEE VIDE ENTRY IN ITS BOOKS OF ACCOUNTS PASSED ON 25.09.2004 HAS DEBITED RS. 155 LACS TOWARDS AUDIO RIGHTS EXPENSES FOR THE FILM DIL CHURAKE CHAL DIYE ( LATER RENAMED AS SHAADI KAR KE PHAS GAYE YAAR ) AS IS EMANATING FROM LEDGER ACCOUNT FILED BY THE ASSESSEE. HOWEVER , THE REDUCED COST OF ACQUISITION OF AUDIO RIGHTS WAS RS. 55 LACS WHILE RS. 100 LACS WAS REFUNDABLE ADVANCE FOR WHICH 10 REFUND CHEQUES OF RS. 10 LACS ALL DRAWN ON UTI BANK , ANDHERI, MUMABI WAS HANDED OVER BY KARISHMA INTERNATIONAL TO THE ASSESSEE , BUT ENTRY AS IS APPEARING IN LEDGER ACCOUNTS OF M/S KARISHMA INTERNATIONAL IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS OF RS. 155 LACS TOWARDS COST OF ACQUISITION OF AUDIO RIGHTS OF DIL CHURAKE CHAL DIYE ( LATER RENAMED AS SHADI KAR KE PHAS GAYA YAAR ) AS PER LEDGER ACCOUNT . THIS ASPECT WAS NOT LOOKED INTO BY THE AUTHORITIES BELOW NOR THE JUSTIFICATION OF FURTHER RELEASING AN ADDITIONAL ADVANCE OF RS. 100 LACS BY THE ASSESSEE TO SAID KARISHMA INTERNATIONAL WHOSE PROCEEDS WERE USED TO PAY RS. 90 LACS IN AGGREGATE TO WIVES OF THE DIRECTORS OF THE ASSESSEE , IN SETTLEMENT OF INTER - SE DISPUTES AND DIFFERENCES OF WIVES OF DIRECTORS OF THE ASSESSEE COMPANY WITH SAID M/S KARISHMA INTE RNATIONAL. THE ASSESSEE HAS DEBITED M/S KARISHMA INTERNATIONAL FOR RS. 90 LACS ON 01.01.2005 TOWARDS PAYMENTS MADE TO MRS VARSHA R. TAURANI AND MRS. RENU K. TAURANI AS PER AGREEMENT OF ARRANGEMENT DATED 02.03.2004 ON SETTLEMENT OF INTER - SE DISPUTES AND DIF FERENCES OF MRS. VARSHA R.TAURANI AND MRS. RENU K TAURANI, BOTH WIVES OF THE DIRECTORS OF THE ASSESSEE,. IT IS CRITICAL TO LOOK INTO ORIGINAL AGREEMENT DATED 09.06.1999 ENTERED INTO BY THE ASSESSEE WITH M/S KARISHMA INTERNATIONAL TO UNDERSTAND THE ROLE AND RESPONSIBILITIES OF WIVES OF DIRECTORS OF THE ASSESSEE VIS - A - VIS THE AFORESAID FEATURE FILM DIL CHURAKE CHAL DIYE OR ANY OTHER ARRANGEMENTS WHICH WAS EXISTING BETWEEN THEM AND SAID KARISHMA INTERNATIONAL AND NATURE OF THEIR DISPUTE AND DIFFERENCES I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 30 | P A G E WITH KARISHMA INTERNATIONAL SO AS TO UNDERSTAND WHETHER COMMERCIAL EXPEDIENCY OR PRUDENCE WAS IN PLAY WHILE ADVANCING ADDITIONAL ADVANCE OF RS. 100 LACS BY THE ASSESSEE TO SAID M/S KARISHMA INTERNATIONAL , OUT OF WHICH RS 90 LACS WAS PAID BY THE ASSESSEE TO THE WIVES OF DIRECTORS OF THE ASSESSEE COMPANY ON BEHALF OF SAID M/S KARISHMA INTERNATIONAL IN SETTLEMENT OF THEIR INTER - SE DISPUTE AND DIFFERENCE OR WAS THIS ADDITIONAL ADVANCE OF RS. 100 LACS WAS GRATUITOUS PAYMENT BY THE ASSESSEE TO SAID M/S KARISHMA I NTERNATIONAL TO PROTECT THE INTEREST OF WIVES OF THE DIRECTOR OF THE ASSESSEE COMPANY. IT IS ALSO IMPORTANT TO UNDERSTAND THE FATE /CLEARANCE OF CHEQUES OF RS. 100 LACS ( 10 CHEQUE OF RS. 10 LACS EACH) GIVEN BY SAID KARISHMA INTERNATIONAL TO THE ASSESSEE A S REFUND OF THIS ADDITIONAL ADVANCE OF RS. 100 LACS . K ) THE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 ALSO PROVIDES THAT M/S KARISHMA INTERNATIONAL ACKNOWLEDGED THAT IT IS LIABLE TO PAY TO ASSESSEE RS. 65 LACS AS WELL FRESH ADDITIONAL ADVANCE RECEIVED RS. 100 LACS RECEIVED BY IT FROM ASSESSEE , WHEREIN M/S KARISHMA INTERNATIONAL AGREED THAT IT WILL PAY RS. 65,00,000/ - TO THE ASSESSEE BEFORE EFFECTING DELIVERY OF ANY PRINTS OF THE SAID PICTURE FOR ANY OF THE TERRITORIES OF THE WORLD INCL UDING THE OVERSEAS TERRITORIES . M/S KARISHMA INTERNATIONAL AGREED THAT IT WILL NOT RELEASE, DISTRIBUTE, EXHIBIT OR EXPLOIT THE SAID PICTURE DIL CHUARKE CHAL DIYE IN ANY OF THE TERRITORIES OF THE WORLD DIRECTLY OR INDIRECTLY UNTIL THIS AMOUNT OF RS 65 L ACS IS FIRST PAID TO THE ASSESSEE. M/S KARISHMA INTERNATIONAL ALSO AGREED TO SECURE THIS PAYMENT OF RS. 65 LACS BY OBTAINING IN FAVOUR OF THE ASSESSEEE , SIMULTANEOUSLY A LETTER OF CONFIRMATION FROM THE LABORATORIES WHERE THE NEGATIVES OF THE SAID PICTURE DIL CHURAKE CHAL DIYE ARE LYING , TO THE EFFECT THAT THE SAID LABORATORY SHALL NOT EFFECT DELIVERY OF ANY PRINTS OF THE SAID PICTURE FOR ANY TERRITORY OF THE WORLD UNTIL THE SAID SUM OF RS. 65 LACS IS FIRST PAID IN FULL TO THE ASSESSEE. APART FROM ABOVE, SAID M/S KARISHMA INTERNATIONAL ALSO AGREED TO REPAY RS. 100 LACS BY TEN MONTHLY INSTALMENTS OF RS. 10 LACS EACH STARTING FROM THE EXPIRY OF ONE YEAR FROM THE DATE OF THE FIRST RELEASE OF THE SAID PICTURE IN ANY TERRITORIES OF THE WORLD. AS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 31 | P A G E COLLATERAL SEC URITY FOR SECURING PAYMENT OF RS. 100 LACS, M/S KARISHMA INTERNATIONAL DEPOSITED 10 UND ATED CHEQUES WITH THE ASSESSEE OF RS. 10 LACS EACH. L ) THE ASSESSEE ON ITS PART AGREED TO RELEASE THE MUSIC OF THE SAID FILM WITHIN 30 DAYS OF THE DELIVERY OF THE MASTER TA PES/ORIGINAL RECORDING TRACK(DATS.) OF THE SAID FEATURE FILM. M ) THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 , ALSO RECORDS THAT M/S KARISHMA INTERNATIONAL HAS ALSO ENTERED INTO SETTLEMENT WITH M/S DASHMESH INTERNATIONAL TO RESOLVE THEIR DISPUTES AND DIFFE RENCES. N ) THUS, IT IS CLEAR FROM THIS AGREEMENT OF ARRANGEMENT DATED 02.03.2004 THAT THE ASSESSEE DID GET THE AUDIO RIGHTS FROM M/S KARISHMA INTERNATIONA L WITH RESPECT TO THE MOVIE DIL CHURAKE CHAL DIYE FOR A REDUCED CONSIDERATION OF RS. 55 LACS AS AGAINS T ORIGINALLY AGREED CONSIDERATION OF RS. 280 LACS. SINCE, THE ASSESSEE HAD ALREADY ADVANCED RS. 130 LACS BY THE TIME THEIR DISPUTES AND DIFFERENCES GOT RESOLVED VIDE AGREEMENT OF ARRANGEMENT DATED 02.03.2004, THE EXCESS AMOUNT BECAME REFUNDABLE TO THE ASS ESSEE OWING TO REDUCED COMPENSATION WHICH AFTER ADJUSTMENT OF ADDITIONAL ADVANCE OF RS. 10 LACS , WAS RS. 65 LACS, WHICH WAS FURTHER SECURED BY M/S KARISHMA INTERNATIONAL BY CREATING A LIEN OVER OVERSEAS RIGHTS OF THE FEATURE FILM DIL CHURAKE CHAL DIYE IN HINDI IN FAVOUR OF THE ASSESSEE . SINCE NEGATIVE OF THE SAID FILM WERE LYING WITH LABORATORY M/S RAMNORD RESEARCH LABORATORIES PRIVATE LIMITED , INSTRUCTIONS WERE ACCORDINGLY ISSUED BY KARISHMA INTERNATIONAL TO THE SAID LABORATORY NOT TO RELEASE NEGATIVE S OF THE SAID FILM TO ANYBODY FOR OVERSEAS TERRITORY UNLESS FIRSTLY THE ASSESSEE WAS PAID RS. 65 LACS. THIS LETTER DATED 22.03.2004 WRITTEN BY KARISHMA INTERNATIONAL TO M/S RAMNORD RESEARCH LABORATORIES PRIVATE LIMITED IS PLACED IN PAPER BOOK AT PAGE 75. THE SAID LABORATORY VIDE LETTER DATED 08.04.2004 WRITTEN TO THE ASSESSEE ACKNOWLEDGED THAT IT WILL NOT DELIVER NEGATIVES OF THE SAID FEATURE FILM DIL CHURAKE CHAL DIYE FOR OVERSEAS TERRITORY UNLESS THE ASSESSEE IS PAID RS. 65 LACS.THE SAID LETTER IS PLACED IN PAPER BOOK AT PAGE 76 . I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 32 | P A G E O ) ON PAGE 77 OF THE PAPER BOOK IS A LETTER WRITTEN BY REDSUN EXPORTS PRIVATE LIMITED TO M/S KARISHMA INTERNATIONAL WITH COPY TO THE ASSESSEE ACKNOWLEDGING THAT RS. 65 LACS SHALL BE PAID ON BEHALF AND ON ACCOUNT OF M/S KARISH MA INTERNATIONAL TO THE ASSESSEE , WHICH IS IN ACCORDANCE WITH THE UNDERSTANDING VIDE INTER - SE AGREEMENT KARISHMA INTERNATIONAL HAD WITH REDSUN EXPORTS PRIVATE LIMITED, DATED 20.08.1999 FOR OVERSEAS CIRCUIT. P ) THEN THERE WAS FURTHER CHANGE IN UNDERSTANDING BETWEEN M/S KARISHMA INTERNATIONAL WITH ASSESSEE, VIDE FRESH AGREEMENT OF ARRANGEMENT DATED 18.03.2005, WHICH IS PLACED AT PAGE 78 OF PAPER BOOK. IN THIS REVISED AGREEMENT OF ARRANGEMENT DATED 18.03.2005, IT IS RECORDED THAT RELEASE OF FILM DIL CHURAKE CHAL DIYE NOW TITLED SHAADI KARKE PHAS GAYA YAAR GOT DELAYED FROM PROPOSED DATE OF RELEASE IN JUNE 2004 TO NOW REVISED DATE OF RELEASE IN MAY 2005. IT IS AGREED BY THE ASSESSEE WITH M/S KARISHMA INTERNATIONAL THAT IT WILL ACCEPT RS. 45 LACS AS AGAINST RS. 65 LACS AS ORIGINALLY AGREED VIDE AGREEMENT OF ARRANGEMENT DATED 22.03.2004. THE SAID KARISHMA INTERNATIONAL AGREED THAT MOVIE WILL BE RELEASED IN MAY 2005 OR OTHERWISE THIS LETTER WILL BECOME NULL AND VOID. THE SAID M/S KARISHMA INTERNATIONAL RELEASED TWO POST DATED CHEQUES OF RS. 10 LACS EACH AGGREGATING TO RS. 20 LACS DRAWN ON DEVELOPMENT CREDIT BANK, LOKHANDWALA BRANCH, MUMBAI IN FAVOUR OF THE ASSESSEE PAYABLE WITHIN TEN MONTHS FROM THE DATE OF RELEASE O F AFORESAID FILM , TOWARDS REMAINING AMOUNT OF RS. 20 LACS PAYABLE TO THE ASSESSEE .THE SAID KARISHMA INTERNATIONAL ALSO CREATED LIEN ON FULL RIGHTS FOR THE ENTIRE WORLD OVER THEIR FORTHCOMING PRODUCTION TITLED JAT YAMLA PAGLA DEEWANA STARRING BOBBY DEO L , AKSHAY KHANNA AND OTHERS , DIRECTED BY MR. BUBBY KENT. THE FATE /CLEARANCE OF THESE POST DATED CHEQUES OF RS. 20 LACS DRAWN ON DCB IN FAVOUR OF THE ASSESSEE AS WELL ABOUT RELEASE OF THIS PROPOSED MOVIE JAT YAMLA PAGLA DEEWANA OVER WHICH THE ASSESSEE H ELD RIGHTS IS NEITHER EXPLAINED BY THE ASSESSEE NOR LOOKED INTO BY THE AUTHORITIES BELOW. Q ) ON 19.03.2005, KARISHMA INTERNATIONAL INTIMATED TO LABORATORY M/S RAMNORD RESEARCH LABORATORIES PRIVATE LIMITED ABOUT THEIR FRESH ARRANGEMENT WITH THE ASSESSEE, WHER EIN NOW THE ASSESSEE I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 33 | P A G E HAS AGREED TO ACCEPT RS. 45 LACS INSTEAD OF RS. 65 LACS VIDE PREVIOUS ARRANGEMENT BEFORE RELEASE/DELIVERY OF THE AFORESAID PICTURE/PRINTS FOR OVERSEAS TERRITORY. THE SAID LETTER IS PLACED IN PAPER BOOK AT PAGE 80. R ) THEN AT PAGE 81 OF TH E PAPER BOOK IS THE LETTER DATED 31.07.2006 WRITTEN BY THE ASSESSEE TO LABORATORY NAMELY M/S RAMNORD RESEARCH LABORATORIES LIMITED ACKNOWLEDGING ABOUT THE RECEIPT OF CHEQUE NUMBER 121851 DATED 29.07.2006 DRAWN ON VIJAYA BANK, HILL ROAD BRANCH, BANDRA(W) , MUMBAI FOR RS. 45 LACS FROM M/S REDSUN EXPORTS PRIVATE LIMITED FOR AND ON BEHALF OF KARISHMA INTERNATIONAL AND PERMISSION WAS GRANTED BY THE ASSESSEE TO SAID LABORATORY TO DELIVER THE PRINTS OF SHAADI KARKE PHAS GAYA YAAR FOR OVERSEAS TERRITORY THEREBY L IFTING LIEN WHICH WAS EARLIER RECORDED IN FAVOUR OF THE ASSESSEE BY THE SAID LABORATORY. THE PHOTO COPY OF AFORESAID CHEQUE OF RS. 45 LACS IS ALSO PLACED IN PAPER BOOK AT PAGE 82. 10.6 THUS, WHAT TRANSPIRES FROM THE ANALYSIS OF THE ABOVE DOCUMENTS WHICH ARE PLACED ON RECORD BEFORE US IS THAT THE FACTS WERE NOT PROPERLY EXPLAINED BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW NOR WERE THESE FACTS PROPERLY APPRECIATED BY THE AUTHORITIES BELOW . KEEPING IN VIEW OUR AFORESAID DETAILED ANALYSIS OF THE MAT ERIAL ON RECORD, IT IS NOW REQUIRED TO LOOK INTO , AS FOLLOWS: A ) THE ORIGINAL AGREEMENT BETWEEN ASSESSEE AND M/S KARISHMA INTERNATIONAL DATED 09.06.1999 IS REQUIRED TO BE PLACED ON RECORD BY THE ASSESSEE . B ) THE COMMERCIAL EXPEDIENCY AND PRUDENCE IN FURTHER ADV ANCING RS. 100 LACS BY THE ASSESSEE TO SAID M/S KARISHMA INTERNATIONAL VIDE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 NEEDS TO BE EXPLAINED, MORE SO WHEN THE AMOUNT ALREADY ADVANCED WAS RS. 130 LACS WHICH WAS IN EXCESS OF REDUCED CONSIDERATION OF RS. 55 L ACS FOR ACQUIRING AUDIO RIGHTS OF FEATURE FILM DIL CHURAKE CHAL DIYE AND THE SAID ADDITIONAL ADVANCE OF RS. 100 LACS IS DISBURSED BY ASSESSEE FOR AND ON BEHALF OF KARISHMA INTERNATIONAL TO THE TUNE OF RS. 90 LACS TO WIVES OF DIRECTORS OF THE ASSESSEE COM PANY WHICH WAS IN RESOLVING INTER - SE DISPUTES AND DIFFERENCES OF WIVES OF THE DIRECTORS OF THE ASSESSEE WITH M/S KARISHMA INTERNATIONAL . I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 34 | P A G E THE COMMERCIAL EXPEDIENCY AND PRUDENCE IN RELEASING ADDITIONAL ADVANCE TO M/S KARISHMA INTERNATIONAL NEEDS TO BE LOOKE D INTO MORE - SO OUT OF THIS RS. 90 LACS WERE DISBURSED BY ASSESSEE ON BEHALF OF M/S KARISHMA INTERNATIONAL TO WIVES OF THE DIRECTOR OF THE ASSESSEE TO SETTLE AND RESOLVE THEIR INTER - SE DISPUTES AND DIFFERENCES. C ) FATE /CLEARANCES OF CHEQUES OF RS. 100 LACS ISS UED BY KARISHMA INTERNATI ONAL IN FAVOUR OF THE ASSESSEE TO SECURE ADDITIONAL ADVANCE OF RS. 100 LACS VIDE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 NEEDS TO BE EXPLAINED AND LOOKED INTO. D ) REASON FOR BOOKING COST OF AUDIO RIGHTS IN SEPTEMBER 2004 OF RS. 155 LACS IN BOOKS OF ACCOUNTS OF THE ASSESSEE AS AGAINST REDUCED CONSIDERATION OF RS. 55 LACS VIDE AGREEMENT OF ARRANGEMENT DATED 02.03.2004 NEEDS TO BE EXPLAINED AND LOOKED INTO . E ) FATE /CLEARANCE OF CHEQUES OF RS. 20 LACS ISSUED BY KARISHMA INTERNATIONAL IN FA VOUR OF THE ASSESSEE VIDE FRESH AGREEMENT OF ARRANGEMENT DATED 18.03.2005 TO SECURE THIS REMAINING UNPAID AMOUNT OF RS. 20 LACS NEEDS TO BE EXPLAINED AND LOOKED INTO. F ) FATE OF RELEASE OF PROPOSED MOVIE TO BE PRODUCED BY KARISHMA INTERNATIONAL NAMELY JAT Y AMLA PAGLA DEEWANA NEEDS TO BE EXPLAINED AND LOOKED INTO AND HOW THE RIGHTS ASSIGNED BY KARISHMA INTERNATIONAL IN FAVOUR OF THE ASSESSEE WITH RESPECT TO ABO VE FEATURE FILM WAS DEALT WITH BY THE ASSESSEE ALSO NEEDS TO BE EXPLAINED AND LOOKED INTO. 10.7 WE HAVE CULLED OUT THE FACTS AS DETAILED ABOVE FROM THE RECORDS BEFORE US AND OUR OBSERVATIONS ARE ALSO CULLED OUT ABOVE AS TO THESE FACTS ON RECORD. WE HAVE OBSERVED THAT THE ASSESSEE NEED TO PUT ALL THE FACTS OF THE CASE IN PROPER PERSPECTIVE BEFORE THE AUT HORITIES BELOW SURROUNDING THIS WRITE OFF OF RS. 20 LACS AND AUTHORITIES BELOW ARE ALSO DIRECTED TO APPRECIATE THE FACTS IN PROPER PERSPECTIVE AFTER CONSIDERING ALL THE DETAILS TO ARRIVE AT CONCLUSION THAT THIS CAN BE ALLOWED AS BUSINESS LOSS OR NOT . THUS, KEEPING IN VIEW OUR DETAILED DISCUSSIONS AS ABOVE, WE ARE OF THE CONSIDERED VIEW THAT MATTER NEED TO BE RESTORED TO THE FILE OF THE AO FOR F DENOVO ASSESSMENT . THE ASSESSEE IS DIRECTED TO GIVE COMPLETE EXPLANATIONS AS TO THIS WRITE OFF OF RS. 20 LACS KEE PING IN VIEW ENTIRE FACTUAL MATRIX OF THE CASE AND AS CULLED OUT BY I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 35 | P A G E US IN THIS ORDER IN PRECEDING PARAS . THE AO IS DIRECTED TO GIVE PROPER AND ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDAN CE WITH LAW IN SET ASIDE PROCEEDINGS . THE AO IS DIRECTED TO ADMIT ALL EVIDENCES/EXPLANATIONS SUBMITTED BY THE ASSESSEE IN SET ASIDE PROCEEDINGS BEFORE THE AO ITS DEFENCE WHICH SHALL BE THEN ADJUDICATED BY THE AO ON MERITS IN ACCORDANCE WITH LAW. WE HAVE A LSO NOTED THAT THE TRIBUNAL VIDE ORDERS DATED 06.08.2018 IN ASSESSEES OWN CASE IN ITA NO. 1894/MUM/2017 FOR AY 2010 - 11 HAS HELD THAT EXPENDITURE INCURRED FOR PURCHASE OF AUDIO VIDEO RIGHTS IS REVENUE IN NATURE. THIS GROUND OF APPEAL BEING GROUND NO. 1 F ILED BY THE ASSESSEE IN MEMO OF APPEAL WITH TRIBUNAL IS ALLOWED FOR STATISTICAL PURPOSES. WE ORDER ACCORDINGLY. 11. COMING TO THE SECOND ISSUE, WE HAVE OBSERVED THAT THE ASSESSEE HAS TAKEN ON LEAVE & LICENCE BASIS COMMERCIAL PREMISES BEARING NUMBER S 501 - 6 01, DURGA CHAMBERS, 278/E, LINKIN G ROAD, KHAR WEST, MUMBAI 400052 FROM MRS. RENU K TAURANI AND MRS VARSHA R. TAURANI, WIVES OF THE DIRECTOR OF THE ASSESSEE COMPANY FOR A PERIOD OF THREE YEARS W.E.F. 01.04.2010 TO 31.03.2013 VIDE LEAVE AND LICENSE AGREEMEN T DATED 01 ST APRIL 2010 . THE SAID AGREEMENT DATED 01.04.2010 WAS ENTERED INTO BY THE ASSESSE AS THE EARLIER AGREEMENT DATED 01.01.2007 HAD EXPIRED AND LICENSORS HAVE VIDE LETTER DATED 29.01.2008 ASKED FOR INCREASE IN COMPENSATION AND INTEREST REFUNDABLE RENT DEPOSIT. IN TERMS OF LEAVE AND LICENSE AGREEMENT, THE MONTHLY COMPENSATION BEING LICENSE FEE IS FIXED AT RS. 4,50,000/ - FOR EACH PREMISES EXCLU D ING SERVICE TAX COMPONENT. THE ASSESSEE HAD ALSO GIVEN INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9.0 C RORES TO LICENSORS WHO HAPP EN ED TO BE WIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY. IT IS PERTINENT TO MENTION THAT THIS AMOUNT OF RS. 9.0 CRORES WAS ALL PAID IN EARLIER YEARS. THE LEDGER ACCOUNT OF RENT DEPOSIT IS PLACED IN PAPER BOOK AT PAGE 1 - 4. PERUS AL OF T HE RENT DEPOSIT ACCOUNT WILL REVEAL THAT RS. 2.0 CRORES WERE PAID IN FINANCIAL YEAR 2003 - 04 , WHILE RS. 7.0 CRORES WERE PAID I N FINANCIAL YEAR 2006 - 07 AND 2007 - 08. WE HAVE ALSO OBSERVED THAT THERE IS NO DISPUTE AS TO TAKING THESE PREMISES ON LEAVE A ND LICENSE BASIS BY THE ASSESSEE FOR COMMERCIAL USE FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AS THIS ASPECT IS NOT SUBJECT MATTER OF THE DISPUTE BY THE REVENUE. THE REVENUE IS FIRSTLY AGGRIEVED THAT SUCH A HUGE AMOUNT OF RS. 9.00 CRORES IS PAID AS INTEREST FREE REFUNDABLE RENT DEPOSIT TO WIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY WHICH DEFIES COMMERCIAL I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 36 | P A G E EXPEDIENCY AND SECONDLY REVENUE IS ALSO AGGRIEVED THAT ON ONE HAND THE ASSESSEE HAS AVAILED TERM LOANS AND OTHER LOANS ON WHICH INTEREST IS PAID BY THE ASSESSEE AND ON THE OTHER HAND , INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9.0 CRORES IS DEPOSITED WITH WIVES OF THE DIRECTORS OF THE ASSESSEE COMPANY, WHICH LED THE AO TO MAKE ADDITIONS TO THE INCOME OF THE ASSESSEE BY WAY OF DISALLOWANCE OF IN TEREST EXPENSES TO THE TUNE OF RS. 1,08,00,000/ - BEING 12% OF INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9.0 CRORES. ON THE FIRST GRIEVANCE OF THE REVENUE, WE HAVE OBSERVED IT WAS INCUMBENT ON THE REVENUE TO HAVE BROUGHT ON RECORD INCRIMINATING MATERIAL TO JUSTIFY THAT INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9.0 CRORES FOR TAKING ON LEAVE AND LICENSE BASIS COMMERCIAL PREMISES BEARING NUMBERS 501 - 601, DURGA CHAMBERS, 278/E, LINKIN G ROAD, KHAR WEST, MUMBAI 400052 DEFIES COMMERCIAL EXPEDIENCY AND THE SA ME IS UNCONSCIONABLY HIGH KEEPING IN VIEW INTEREST FREE REFUNDABLE RENT DEPOSIT GRANTED BY LICENSEE OF THE SIMILAR COMMERCIAL PREMISES IN VICINITY IN FAVOUR OF LICENSORS OF THE PREMISES. NO SUCH COMPARABLES ARE BROUGHT ON RECORD BY THE AUTHORITIES BELOW TO PROVE THAT THESE INTEREST FREE REFUNDABLE RENT DEPOSITS WERE UNCONSCIONABLY HIGH DEFYING COMMERCIAL EXPEDIENCY AND ONLY BALD STATEMENT IS MADE THAT THE SAID RENT DEPOSITS ARE EXCESSIVE AND IN THE ABSENCE OF COGENT INCRIMINATING MATERIAL, THE INTEREST FRE E REFUNDABLE RENT FREE DEPOSIT OF RS. 9.0 CRORES CANNOT BE HELD TO BE EXCESSIVE OR EXORBITANT. THE ASSESSEE HAS PLACED ALL LEAVE AND LICENSE AGREEMENTS ON RECORD IN PAPER BOOK FILED WITH TRIBUNAL AT PAGE 23 - 42. 1 1.2 . WE HAVE GONE THROUGH AUDITED FINANCIAL STATEMENT S OF THE ASSESSEE FOR FINANCIAL YEAR 2003 - 04 AND ALSO FROM FINANCIAL YEAR 2007 - 08 TO FINANCIAL YEAR 2012 - 13 , WHICH ARE ALL PLACED IN PAPER BOOK FILED WITH THE TRIBUNAL AT PAGE 6 - 18. THE PERUSAL OF THESE FINANCIAL STATEMENTS CLEARLY SHOWS THAT TH E ASSESSEE HAS ITS OWN INTEREST FREE FUNDS AVAILABLE WITH IT WHICH ARE MORE THAN THE INTEREST FREE REFUNDABLE RENT DEPOSIT RELEASED BY THE ASSESSEE IN FAVOUR OF LICENSORS OF THE AFORESAID COMMERCIAL PREMISES .THE NET WORTH STATEMENT OF THE ASSESSEE COMPAN Y FOR THE FINANCIAL YEAR 2003 - 04 TO 2013 - 14 ARE ALSO PLACED IN PAPER BOOK AT PAGE 5. THE DETAILS OF THE INTEREST FREE REFUNDABLE RENT DEPOSIT GRA N TED BY THE ASSESSEE WAS RS. 2 CRORES IN FINANCIAL YEAR 2003 - 04 WHILE RS. 7 CRORES STOOD DISBURSED IN FINANCIA L YEAR 2006 - 07 AND 2007 - 08 ( RS. 1 CRORE IN FINANCIAL YEAR 2006 - 07 WHILE RS. 6 CRORES STOOD I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 37 | P A G E DISBURSED IN FINANCIAL YEAR 2007 - 08 ) REFER PAPER BOOK/PAGE 1 - 4. THE PERUSAL OF AUDITED FINANCIAL STATEMENTS PLACED ON RECORD CLEARLY REVEALS THAT OWN FUNDS CONSIS TING OF SHARE CAPITAL AND RESERVES AND SURPLUS WERE HIGHER THAN INTEREST FREE REFUNDABLE RENT DEPOSIT DISBURSED BY THE ASSESSEE IN ALL THESE YEARS. REVENUE HAS ALSO NOT BROUGHT ON RECORD ANY DIRECT NEXUS OF INTEREST BEARING BORROWED FUNDS BEING UTILISED F OR GRANTING INTEREST FREE REFUNDABLE RENT DEPOSIT. THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPRISING OF SHARE CAPITAL AND RESERVES AND SURPLUS FOR ALL THESE YEARS ARE REPRODUCED HEREUNDER: FINANCIAL YEAR SHARE CAPITAL RESERVES AND SURPLUS TOTAL ( RS IN CRORES) 2003 - 04 12.65 99.32 111.97 2006 - 07 15.94 28.64 44.58 2007 - 08 17.30 52.73 70.04 2008 - 09 17.30 61.96 79.27 2009 - 10 17.30 67.92 85.22 2010 - 11 15.96 63.51 79.47 2011 - 12 15.96 68.62 84.58 2 012 - 13 15.36 72.49 87.85 THUS, PERUSAL OF AUDITED FINANCIAL STATEMENTS FOR ALL THESE YEARS CLEARLY REVEALS AS DETAILED ABOVE THAT THE AVAILABILITY OF INTEREST FREE FUNDS WITH THE ASSESSEE WERE MUCH HIGHER THAN INTEREST FREE REFUNDABLE RENT DEPOSIT OF RS. 9 CRORES ADVANCED BY THE ASSESSEE AND IN THE ABSENCE OF ANY COGENT MATERIAL INEXTRICABLY LINKING INTEREST BEARING BORROWINGS WITH THE INTEREST FREE REFUNDABLE RENT DEPOSIT GRANTED BY THE ASSESSEE , THE PRESUMPTION WILL APPLY THAT THE ASSESSEE HAS RE LEASED THE INTEREST FREE REFUNDABLE RENT DEPOSIT OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT. THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LIMITED(SUPRA) IS RELEVANT. WE HOLD THIS GROUND NUMBER 2 RAISED BY ASSESSE E IN ITS APPEAL FOR AY 2011 - I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 38 | P A G E 12 IN FAVOUR OF THE ASSESSEE AND ORDER DELETION OF ADDITIONS AS WERE MADE BY THE AO WHICH STOOD LATER AFFIRMED BY LEARNED CIT(A) . WE ORDER ACCORDINGLY. 12 . IN THE RESULT , APPEAL FILED BY THE ASSESSEE IN ITA NO. 6194/MUM/2017 F OR AY 2011 - 12 IS PARTLY ALLOWED AS INDICATED ABOVE . 13 . SINCE THE ISSUE INVOLVED IN APPEAL(S) IN ITA NO. 6195 TO 6196/MUM/2017 FOR AY 2012 - 13 AND 2013 - 14 RESPECTIVELY ARE SIMILAR TO THE ISSUE IN APPEAL IN ITA NO. 6194 /MUM/2017 WHICH IS CONCERNING DISALL OWANCE OF INTEREST OF RS. 1,08,00,000/ - BEING INTEREST@12% ON RENT DEPOSIT OF RS. 9.0 CRORE GRANTED BY THE ASSESSEE FOR TAKING COMMERCIAL PREMISES ON LEAVE AND LICENSE BASIS , OUR DECISION IN ITA NO. 6194 /MUM/2017 FOR AY 2011 - 12 SHALL A PPLY MUTATIS MUTANDIS TO APPEALS OF THE ASSESSEE IN ITA NO. 6195 TO 6196 /MUM/2017 FOR AY 2012 - 13 AND 2013 - 14 RESPECTIVELY . THE APPEALS OF THE ASSESEES IN ITA NO. 6195 AND 6196/MUM/2017 FOR AY 2012 - 13 AND 2013 - 14 RESPECTIVELY ARE ALLOWED. WE ORDER ACCORDINGLY. 1 4 . NOW WE WIL L TAKE UP APPEAL OF THE REVENUE IN ITA NO. 6291/MUM/2017 FOR AY 2012 - 13. 14.2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - 1. 'WHETHER ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF AUDIO RIGHT EXPENSES AMOUNTING TO RS.3,10,99,925/ - HOLING THE SAME AS REVENUE EXPENSES WITHOUT APPRECIATING THAT THE EXPENSES INCURRED ARE OF ENDURING NATURE AND CATEGORICALLY FALLS UNDER THE HEAD OF 'CAPITAL EXPENSES' 2. 'WHETHER ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIR ECTING TO DELETE THE DIRECTING THE ADDITION O F AUDIO RIGHT EXPENSES AMOUNTING TO RS.3,10,99,925/ - WITHOUT APPRECIATING THAT THE AUDIO RIGHTS ACQUIRED BY THE ASSESSEE GIVES IT A PERPETUAL RIGHT TO EXPLOIT THE SAME AND AS SUCH THE EXPENSES INCURRED ARE OF CAPITAL IN NATURE'. 3. THE APPELLANT PRAYS TH AT THE ORDER OF CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED'. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 39 | P A G E 14.3 W E HAVE OBSERVED TH AT THE SHORT QUESTION W HICH HAS BEEN ARISEN IN THIS APPEAL IS WITH RESPECT TO DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS AUDIO RIGHTS TO THE TUNE OF RS. 3,10,99,925/ - WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENSES WHILE THE AO TREATED THE SAME AS CAPITAL EXPENDITURE AND CONSEQUENTLY THE AO ALLOW ED DEPRECIATION ON THE SAME . THE ASSESSEE HAD SUBMITTED BEFORE THE AO AS UNDER: - 'EXPLANATION AS TO WHY AUDIO RIGHT EXPENDITURE RS.3,10,99,925/ - SHOULD NOT BE CONSIDERED AS CAPITAL EXPENDITURE. ASSESSEE IS DOING BUSINESS OF MAN UFACTURING AND SALE OF AUDIO CASSETTES AND CD'S. THEY MANUFACTURE BLANK AS WELL PRE - RECORDED CASSETTES OF MOTION PICTURES AND MUSICAL SOFTWARE'S (NON - FILMY SONGS/OR BASIC PROGRAMS) UNDER THE T RADE NAME AND LOGO OF TIPS. TO MANUFACTURE AND MARKET PRE - RECORDED CASSETTES OF FILMS ASSESSEE COMPANY HAS TO PURCHASE THE 'MASTER PLATE' I.E. ORIGINAL SOUND TRACK OF FILMS SONGS ALSO COMMONLY KNOWN AS AUDIO RIGHTS, WHICH OF COURSE IS ACQUIRED IN PERPETUITY FROM DIFFERENT FILM PRODUCERS AND ALSO OF ITS OWN PR ODUCTIONS FOR MAKING SEVERAL COPIES OF AUDIO CASSETTES OF VARIOUS FILMS. IT IS ONLY AFTER ACQUIRING THE AUDIO RIGHTS OF VARIOUS FILMS THE MUSIC AND SONGS OF THE PICTURES WHOSE AUDIO RIGHTS ARE ACQUIRED ARE TRANSMITTED BY REPRODUCING SUCH MUSIC AND SONGS IN AUDIO CASSETTES WHICH ARE ALSO MANUFACTURE AND/OR PURCHASED FROM THE OUTSIDE ON JOB WORK BASIS. IN OTHER WORDS ASSESSEE'S IS TO PRODUCE AND MARKET THE AUDIO CASSETTES UNDER ITS LOGO 'TIPS' FOR WHICH THEY HAVE TO PURCHASE AUDIO RIGHTS OF VARIOUS FILMS FROM DIFFERENT PRODUCERS AND FROM ITS OWN PRODUCTIONS OF MOTION PICTURES WHICH ULTIMATELY ARE REPRODU CED AND TRANSMITTED IN AUDIO CASSETTES EITHER MANUFACTURED BY THE ASSESSEE FIRM OR MANUFACTURED OR PURCHASED FROM OUTSIDE ON J OB WORK BASIS. IN VIEW OF THE ABOVE FACTS OF CASE, IT IS CLEAR THAT ACQUIRING OF AUDIO RIGHTS IS THE BASIC INGREDIENT FOR PRODUCTI ON OF THE AUDIO CASSETTES WITHOUT WHICH PRE - RECORDED CASSETTES OF MOTION PICTURES CANNOT CONCEIVED AS SUCH THE SAME IS TO BE TREATED AS PART AND PARCEL OF RAW MATERIAL USED FOR MANUFACTURING THE CASSETTES. SINCE AUDIO RIGHTS IS ITSELF AN ITEM TO BE USED FO R PRODUCTION AND NOT AN EQUIPMENT TO HELP THE PRODUCTION, EXPENSES INCURRED ON THIS ITEMS DIRECTLY VARY WI TH T HE TURNOVER OF THE GOODS PRODUCED AND SOLD AS EVIDENT FROM THE ENCLOSED STATEMENT OF PURCHASES OF AUDIO RIGHTS AND SALES FOR PAST THREE YEARS. AS SUCH, THE SAID EXPENSES IS RIGHTLY CLAIMED AS MANUFACTURING EXPENSES AND DEBITED TO TRADING ACCOUNT (TO THE EXTENT OF CASSETTES RELEASED DURING THE YEAR) AND CLAIMED AS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 40 | P A G E EXPENSES FOR AMOUNT PAID TO PRODUCERS OR DURING THE YEAR PURCHASE OF AUDIO U/S. 37(1) O F THE IT. ACT, 1961 AND ON THE SAME BASIS COST OF AUDIO RIGHTS IS ALSO INCLUDED WHILE VALUING THE CLOSING STOCK OF THE FINISHED CASSETTES INCLUDED IN THE C LOSING STOCK SHOWN IN THE TRADING ACCOUNT. CONSIDERING THE ABOVE THE FACTS YOU WILL APPRECIATE THAT AMOUNT SPENT FOR PURCHASE OF AUDIO RIGHTS DURING THE YEAR IS RIGHTLY CLAIMED AS MANUFACTURING EXPENSES WHICH THROUGH PURCHASED AND HELD IN PERPETUITY IS OF THE REVENUE NATURE HENCE THE SAME BE ALLOWED U/S 37(1) OF THE ACT. REASONS AS TO WHY AUDIO RIGHTS OF RS.3,10,99,925/ - SHOULD BE CONSIDERED AS REVENUE AND NOT CAPITAL EXPENSES. ASSESSEES BUSINESS IS THAT R E - PRODUCTION OF AUDIO SOUND AND MUSIC FROM THE ORIGINAL RECORD OF THE SONGS PROVIDED BY THE FILM PRODUCERS AND ITS OWN PRODUCTION COMMONLY KNOW AS AU DIO RIGHTS ( HEREINAFTER REFERRED TO A MASTER PLATE). THE MASTER PLATE CONTAINS THE ORIGINAL SOUND TRACK OF THE FILM RELATING TO THE SONGS AND WITH THE HELP OF THIS MASTER PLATE THE FIRM MAKES SEVERAL COPIES OF AUDIO CASSETTES, WHICH ARE ULTIMATELY SOLD IN MARKET . THE MASTER PLATE IS SIMILAR T O DESIGN FORMULA OR A MOULD USED IN THE MANUFACTURING. THE COMPANY PRODUCES SEVERAL OF THESE CASSETTES FOR DIFFERENT MASTER PLATE. FURTHER FOR EACH FILM THAT IS BEING MADE THE PRODUCERS REQUIRE MUSIC CASSETTES AND SOUND TRACKS, WHICH THE COMPANY MANUFACTURES WITH THE HELP OF THIS MASTER PLATE AND PROVIDES THE CASSETTES PRIOR TO THE RELEASE OF THE FILM NO DOUBT THIS MASTER PLATE IS RETAINED BY THE COMPANY, BUT ITS USE AND REUSE WOULD ENTIRELY DEPEND UPON THE MARKETABILITY OF THE CASSETTES MANUFACTURES BY IT, FURTHER AS SOON AS THE SERIES OF THE CASSETTES RELATING TO A FILM ARE MANUFACTURED AND MARKETED THE MASTER PLATES BECOMES USELESS, THROUGH IN RARE CASE THEY DO GET REUSED FOR MANUFACTURING CASSETTES OF ADDITIONAL COPIE S. THE LIFE OF THE MASTER PLATE IS VERY SHORT, THROUGH THE ASSESSEE RETAINS THE COPY RIGHTS OF THE SAME IN PERPETUITY. WE FURTHER SUBMIT THAT THE MASTER PLATE IS A FORMULA OR RAW MATERIAL FRO M WHICH COPIES ARE MADE SINCE T HE MASTER PLATE IS ONLY A RAW MATE RIAL THE COST OF THE PURCHASE OF THE RAW MATERIAL IS AN ALLOWABLE DEDUCTION IN EVALUATING THE GROSS PROFIT DERIVED IN THE MANUFACTURE AND SALE OF THE COPIES, FURTHER MORE, THE FREQUENCY WITH WHICH FILMS ARE MADE WHICH RESULTS IN NEW TYPES OF MUSIC IT HAS C ONSIDERABLY REDUCED THE LIFE OF THE SOUND TRACK FOR IT IS OUTDATED VERY FAST. THE MASTER PLATE OF ONE COULD NOT SUBSTITUTED FOR ANOTHER AND FOR EVERY NEW MUSIC RECORDING A TOTALLY DIFFERENT PLATE IS REQUIRED, INDICATED VERY CLEARLY THAT THE PLATE IS NOTHIN G MORE THAN A RAW MATERIAL. IT IS CONTENDED THAT MERELY FOR THE REASON THAT THE PAYMENT OF THE MASTER PLATE IS PAID IN A LUMP SUM FORMAT, IT DOES NOT MAKE AN Y DIFFERENCE BECAUSE, WITHOUT T HE CONTENTS OF THE PLATE, THE PLATE ARE WORTHLESS AND IT IS FOR THE CONTENTS THAT THE PRICE IS PAID AND IT CAN NEVER BE EQUATED WITH PURCHASE OF ANY TECHNICAL I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 41 | P A G E KNOW HOW. IT IS FURTHER CONTENDED THAT NOR THAN THE PAYMENT, THE IMPORTANT FACT THAT HAS TO BE GIVEN CONSIDERATION OF IS NATURE OF THE ITEM THAT IS ACQUIRED. SINCE T HE PLATE, IS A BASIC MATERIAL TO FACILITATE THE COPYING OF, THE PAYMENT MADE FOR IT, IS NOTHING MORE THAN THE REVENUE. WE ONCE AGAIN REITERATE THAT UNLIKE THE TANGIBLE AND VISIBLE PRODUCTS THAT HAVE RAW MATERIAL THAT IS EITHER VISIBLE, TANGIBLE THE PRESEN T PRODUCT IS REPRODUCTION OF SOUND MUSIC ETC. EMBEDDED INTO MAGNETIC TAPES OR GRAMOPHONE RECORDS. THE PAYMENT OF AUDIO RIGHTS IS RELATABLE TO THE MAGNETIC TAPES OR THE GRAMOPHONE RECORDS OR COMPACT DISCS FITTED WITH THE SAME SOUND, MUSIC DIALOGUES ETC. THE PRODUCTION OF FILLED TAPES ETC IS NOTHING MORE THAN DUPLICATION OF THE ORIGINAL. THE ORIGINAL MASTER PLATE IS PRIMARILY A RAW MATERIAL AND INCIDENTALLY HAPPEN TO BE THE SUBSTRATUM OF THE BUSINESS OF THE ASSESSEE. THE ONLY POINT OF DIFFERENCE IS THAT THE S UBSTRATUM PART IS ENTIRELY INCIDENTAL TO THE MAIN ACTIVITY OF REPRODUCTION OF THE ORIGINAL PLATE WHICH REPRODUCTION OF THE ORIGINAL IS IMPOSSIBLE WITHOUT THE ORIGINAL SINCE THE MAKING OF THE MASTER PLATE HAS COST THE PRODUCER CERTAIN SUM OF MONEY HE GETS R E - IMBURSEMENT FROM THE ASSESSEE IN THE SHAPE OF FIXED SUM. THE SELLING PRICE OF TAPES OF THE AUDIO CASSETTES CONSISTS OF THE SALE VALUE OF THE BASIC EMPTY TAPES OR AND THE OTHER ELEMENTS TOWARDS THE OVERHEAD COST FOR FILLING THEM UP WITH SOUND MUSIC, DIALO GUE ETC. TO FURTHER, SUBSTANTIATE OUR ARGUMENTS THE ASSESSEE COMPANY WHILE VALUING CLOSING STOCK OF THE FINISHED GOODS SHOWN IN THE TRADING ACCOUNT ALSO INCLUDE COST OF AUDIO RIGHTS UNDER THE HEADING OTHER COST OF PRODUCTION. ALL THE ABOVE FACTS TAKEN INTO CONSIDERATION ITSELF THAT THE ASSESSEE TREATS ITS AUDIO RIGHTS AS ITS STOCK IN TRADE AS SUCH THE SAME IS CONSIDERED AS A REVENUE EXPENSES. WE FURTHER SUBMIT THAT THE MASTER PLATE CONTAINS ONLY THAT MATERIAL THAT HAS BEEN FILLED INTO AND THE PLATE COULD BE USED TO MAKE EXACT COPIES OF THAT PLATE ONLY. FROM THIS POINT OF VIEW IT CLEARLY INDICATES THAT FOR EVERY PRODUCERS FROM WHOM THE COPIES ARE MADE FROM THE PLATE THE PLATE IS DIFFERENT. IN OTHER WORDS, THE FINAL PRODUCT PRODUCED BY THE ASSESSEE IS VERY DIF FERENT FROM ONE TO ANOTHER. FOR EVERY SERIES OF ITEMS OF MUSIC, SOUND ETC THAT IS BEING MADE THE BASIC MATERIAL IS DIFFERENT AND IS EVER UNIFORM, AS SUCH IT WOULD BE WRONG TO THAT THE EXPENDITURE IS IN NATURE OF CAPITAL. AUDIO RIGHTS EXPENSES AS EXPLAINED ABOVE HAVE BEEN TREATED AS CAPITAL EXPENSES AND HAS BEEN DISALLOWED WE SUBMIT THAT APPEAL IN THE VERY CASE OF APPELLANT FOR THE YEAR 1990 - 91 TO 2008 - 09 BEFORE THE ITAT, BENCH - E - MUMBAI HAS BEEN DECIDED IN THE FAVOUR OF THE ASSESSEE. THE VARIOUS FACTS INCLU DING THE CIT(A) VIII ORDERS FOR ASSESSMENT YEAR 1995 - 96 AS WELL AS VARIOUS DECISIONS CITED ON THIS DISPUTED MATTER HAS BEEN DISCUSSED AND REVIEWED AN HONOURABLE BENCH HAS COME TO THE CONCLUSION. THAT EXPENDITURE ON AUDIO RIGHTS IS OF REVEN UE NATURE AND IS ALLOWED U/S. 3 7(1) OF THE I. T.ACT. I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 42 | P A G E IN VIEW OF THE FACTS AND CONSIDERING THE NATURE OF EXPENSES OF THE ASSESSEE ALL THE EXPENSES INCURRED BY PURCHASE OF AUDIO RIGHTS ARE OF THE REVENUE NATURED AND THE SAME IS ALLOWABLE IN BUSINESS EXPENSES AS CLAIMED BY TH E ASSESSEE. WE RESPECTFULLY SUBMIT IN VIEW OF THE ABOVE FACTS OF THE CASE OF THE CASE, WE PRAY THAT YOU BE KIND ENOUGH TO FOLLOW THE DECISION OF ITAT AN ALLOW THE AUDIO RIGHTS AS CLAIMED AS BUSINESS EXPENSES U/S 3 7(1) OF THE I. T.ACT.' 14.4 THE AO REJECTED THE CONTENTION S OF THE ASSESSEE BY HOLDING THAT THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE ITAT, MUMBAI WHICH IS CHALLENGED BY REVENUE BEFORE HONBLE BOMBAY HIGH COURT, WHEREIN THE AO VIDE ASSESSMENT ORDER DATED 26.12.2014 PASSED U/S 14 3(3) OF THE 1961 ACT, DECIDED THE ISSUE AGAINST THE ASSESSEE BY HOLDING AS UNDER: - 5.3 THE ISSUE AS TO WHETHER AUDIO EXPENSES OF RS.3,10,99,925/ - DEBITED TO THE P&L ACCOUNT ARE CAPITAL OR REVENUE IN NATURE HAS BEEN DELIBERATED IN DETAIL IN THE EARLIER ASSESSMENT YEARS RIGHT FROM A.Y.1990 - 91. IN THIS REGARD, THE STAND OF THE REVENUE IS THAT THESE EXPENSES ARE OF ENDURING NATURE AND THEREFORE, SHOULD BE TREATED AS CAPITAL EXPENSES. ALTHOUGH THE ISSUE HAS BEEN DECIDED IN FAVOR OF THE ASSESSEE BY THE CIT (A) AND THE ITAT, THE REVENUE HAS NOT ACCEPTED THE SAID DECISION AND FILED APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT. HENCE, FOLLOWING THE STAND OF THE REVENUE IN THE EARLIER YEARS, THE ASSESSEE'S CLAIM OF EXPENDITURE ON ACQUIRING AUDIO RIGHTS AS REVE NUE EXPENDITURE IS NOT ACCEPTED. ACCORDINGLY, EXPENDITURE ON ACQUIRING AUDIO RIGHTS CLAIMED AS REVENUE EXPENDITURE AMOUNTING TO RS.3,10,99,925/ - IS HEREBY DISALLOWED AND THE SAME IS TREATED AS CAPITAL EXPENDITURE. HOWEVER, DEPRECIATION @ 25 % OF THE SAID EXPENDITURE IS ALLOWED U/S.32. THE SAME WORKS OUT TO RS.77,74,981/ - . ACCORDINGLY, NET DISALLOWANCE OF RS.2,33,24,944/ - IS MADE AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. . 1 5 . THE ASSESSEE FILE D FIRST APPEAL WITH LD. CIT(A) CHAL LENGING THE DECISION OF THE AO AND THE LEARNED CIT(A) WAS PLEASED TO ALLOW THE APPEAL OF THE ASSESSEE BY FOLLOWING THE DECISION OF HIS PREDECESSOR FOR AY 2011 - 12 VIDE APPELLATE ORDER DATED 04.07.2017, BY HOLDING AS UND ER: - 3.2. I HAVE CONSIDERED THE ISSUE UNDER APPEAL, CAREFULLY. I FIND THAT SIMILAR ISSUE WAS THERE IN A.Y.2011 - 12 IN WHICH DECISION HAS BEEN TAKEN AS UNDER: - I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 43 | P A G E '3.2. I HAVE CONSIDERED THE ISSUE UNDER APPEAL, CAREFULLY. I FIND THAT SIMILAR ADDITION WAS ALSO MADE IN EARLIER YEARS WHICH HAS BEEN DECIDED BY THE HON'BLE ITAT IN THE FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING T HE DECISION OF HON'BLE ITAT IN I TA NO.7222/MUM/2012 DATED 14.12.2014, THE ADDITION SO MADE OF RS.3,50,000/ - (NET AMOUNT OF RS.2, 62,500/ - ) IS DELETED.' 16. THE REVENUE BEING AGGRIEVED BY THE DECISION OF LEARNED CIT(A) HAS FILED AN APPEAL BEFORE THE TRIBUNAL AND BOTH THE PARTIES HAVE FAIRLY AGREED THAT THE ISSUE IS COVERED BY SERIES OF DECISION IN ASSESSEES OWN CASE FOR EARLIER YEA RS WHEREIN TRIBUNAL HAS DECIDED THIS ISSUE CONSISTENTLY IN FAVOUR OF ASSESSEE BY HOLDING THAT EXPENDITURE INCURRED FOR ACQUIRING AUDIO RIGHTS IS REVENUE IN NATURE AND IS AN ALLOWABLE BUSINESS EXPENSES . THE ORDERS OF ITAT FOR EARLIER YEARS IN ASSESSEES OWN CASE ARE PLACED IN PAPER BOOK FILED WITH TRIBUNAL. OUR ATTENTION WAS DRAWN TO FOLLOWING ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS WHICH ARE ALL PLACED IN PAPER BOOK , WHEREIN EXPE NDITURE INCURRED FOR ACQUIRING AUDIO RIGHTS WAS HELD BY TRIBUNAL TO BE REVENUE EXPENSES: S.NO. AY ITA NO ORDER DATED 1. 2004 - 05 ITA NO. 2407/MUM/2008 06.08.2009 2. 2005 - 06 ITA NO. 599/MUM/2009 29.01.2010 3. 2006 - 07 ITA NO. 5535/MUM/2009 10.12.2 010 4. 2007 - 08 ITA NO. 3503/MUM/2010 10.11.2010 5. 2008 - 09 ITA NO. 6925/MUM/2011 29.01.2013 6. 2009 - 10 ITA NO. 7222/MUM/2012 14.02.2014 7. 2010 - 11 ITA NO. 1894/MUM/2017 06.08.2018 BOTH THE PARTIES DID NOT BRING TO OUR NOTICE ANY DECISION OF HONBLE BOM BAY HIGH COURT WITH RESPECT TO APPEALS FILED BY REVENUE ON THIS ISSUE CHALLENGING THE AFORESAID APPELLATE ORDER OF THE TRIBUNAL. 17. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON R ECORD INCLUDED CITED CASE LAWS. WE HAVE OBSERVED THAT TH E ASSESSEE HAS PAID RS. I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 44 | P A G E 3,10,99,925/ - FOR PURCHASE OF AUDIO RIGHTS WH ICH WAS CLAIMED AS REVENUE EXPENSES. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AUDIO C ASSETTES & CD S, P RODUCTION AND DISTRIBUTION OF FEATURES FILM S . 17 . 2 WE HA VE OBSERVED THAT THE TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS HAS HELD THAT THESE EXPENSES INCURRED FOR PURCHASE OF AUDIO RIGHTS ARE REVENUE EXPENSES . W E HAVE ALSO OBSERVED THAT THE TRIBUN AL HAS CONSISTENTLY HELD THAT THE EXPENSES INCURRED FOR ACQ UISITION OF AUDIO RIGHTS TO BE REVENUE IN NATURE AND WAS ALLOWED AS BUSINESS EXPENSES BY HOLDING THE ISSUE IN FAVOUR OF THE ASSESSEE . THE DETAILS OF TRIBUNAL ORDERS FOR EARLIER YEARS ARE PLACED IN PARA 16 ABOVE. 17.3 WE HAVE ALSO OBSERVED THAT THE TRIBUNA L IN RECENT DECISION IN ITA NO. 1894/MUM/2017 FOR AY 2010 - 11 IN ASSESSEES OWN CASE VIDE APPELLATE ORDERS DATED 06.08.201 8 HAS OBSERVED THAT EXPENDITURE INCURRED FOR PURCHASE OF AUDIO VIDEO RIGHTS BY THE ASSESSEE IS REVENUE IN NATURE , BY HOLDING AS UNDER; - 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE OF EXPENDITURE INCURRED FOR PURCHASE OF AUDIO AND VIDEO RIGHTS OF FEATURE FILMS FOR PRODUCTION OF CASSETTES AND CDS HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS AND AFTER CONSIDERING RELEVANT FACTS HELD THAT EXPENDITURE INCURRED FOR PURCHASE OF MASTER PLATES IS REVENUE IN NATURE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED BELOW: - 4. AFTER CONSIDERING THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) AND ALSO THE EARLIER YEAR'S ORDER OF THE TRIBUNAL, WE FIND THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE RIGHT UPTO THE ASSESSMENT YEAR 2008 - 09. IN THE LATEST DECISION OF THE TRIBUNAL IN ITA NO.6925/MUM./2011 FOR THE ASSESSMENT YEAR 2008 - 09, ORDER DATED 29TH JANUARY 2013, THE TRIBUNAL, AFTER RELYING UPON THE EARLIER YEAR ORDERS HAS OBSERVED AND HELD AS UNDER: - '4, WE HAVE THE BENEFIT OF THE DECISION OF THE TRI BUNAL IN TTA NO. 599/MUM/09 WHEREIN THE TRIBUNAL AT PARA - 5, PAGE - 2 HAS HELD AS UNDER: - 'AS REGARDS GROUND NO. 1, THE TRIBUNAL HAS DEALT WITH THIS ISSUE AT PARA 3.1 OF ITS ORDER IN I.T. A.NO.2407/M/08 WHICH IS REPRODUCED HEREUNDER FOR EASY REFERENCE 3.1 GRO UND NO1 IS ON THE ISSUE OF ALLOWABILITY OF EXPENDITURE INCURRED ON PURCHASE OF AUDIO RIGHTS TREATED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF AUDIO RIGHTS AND CDS AND I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 45 | P A G E FOR THIS PURPO SE IT PURCHASES AUDIO RIGHTS OF FILM SONGS FROM PRODUCERS. EXPENDITURE INCURRED ON PURCHASE OF AUDIO RIGHTS, MUSIC FOR WHICH IS RELEASED [ACCEPTED AS AUDIO RIGHTS] IS TREATED BY THE ASSESSEE AS REVENUE EXPENDITURE. THE INCOME - TAX DEPARTMENT HAS BEEN SINCE ASSESSMENT YEAR 1990 - 91, DISALLOWING THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE EXPENDITURE IS CAPITAL IN NATURE. THE TRIBUNAL FOR ALL THE EARLIER ASSESSMENT YEARS HAS BEEN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER MADE THE ADDITION OBSERVING AT PARAGRAPH 3.3 ON PAGE 7 THAT THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE TRIBUNAL AND HAS FILED AN APPEAL BEFORE HON'BLE BOMBAY HIGH COURT AND THAT THE ADDITION IS MADE BY FOLLOWING THE STAND OF THE REVENUE IN THE EARLIER YEARS T O KEEP THE ISSUE ALIVE. THE FIRST APPELLATE AUTHORITY APPLIED THE DECISION OF THE TRIBUNAL AND DELETED THE ADDITION. WE SEE NO INFIRMITY IN THE SAME. IN FACT, GROUND IB OF THE REVENUE APPEALS STATES THAT THE GROUND IS TAKEN BECAUSE THE DEPARTMENT HAS NOT A CCEPTED THE DECISION OF THE TRIBUNAL. IN VIEW OF THE ABOVE DISCUSSION, WE RESPECTFULLY APPLY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR EARLIER YEARS AND DISMISS THE GROUND TAKEN BY THE REVENUE. IN VIEW OF THE SAME, GROUND OF APPEAL NO. 1 IS REJECTED,' 5. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD BY THE LD. DEPARTMENTAL REPRESENTATIVE, WE HAVE NO HESITATION IN FOLLOWING THE DECISION OF THE TRIBUNAL (SUPRA). ACCORDINGLY, THE REVENUE'S APPEAL IS DISMISSED .' 5. THUS, RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENCE OF THE EARLIER YEARS, WE DO NOT FIND ANY MERITS ON THE GROUND RAISED BY THE REVENUE AND THE SAME IS DISMISSED. 5. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT EXPENDITURE INCURRED FOR PURCHASE OF AUDIO VIDEO RIGHTS IS REVENUE IN NATURE. THE CIT(A), AFTER CONSIDERING RELEVANT FACTS, HAS RIGHTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD.CIT(A) AND HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF LD.CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 17.4 EVEN BEFORE US, NO DISTINGUISHING FACTS ARE BROUGHT ON RECORD BY BOTH THE RIVAL PARTIES IN THE YEAR UNDER CONSIDERATION BEFORE THE BENCH VIS - A - VIS FACTS AS WERE THERE IN PRECEDING YEARS. FURTHER, NO JUDGMENT OF SUPERIOR COURT IS BROUGHT ON RECORD BY BOTH THE RIVAL PARTIES HOLDING AGAINST THE ASSESSEE . THUS, WE HAVE NO REASON TO TAKE A DIFFERENT STAND THAN WHAT WAS TAKEN BY TRIBUNAL C ONSISTENTLY OVER PRECEDING YEARS IN ASSESSEES OWN CASE . RESPECTFULLY, FOLLOWING THE DECISION OF TRIBUNAL IN ITA NO. 1894/MUM/2017 FOR AY 2010 - 11 , WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN ACQUIRING AUDIO RIGHTS ARE REVENUE EXPENSES AND L EARNED CIT(A) APPEAL HAS I.T.A. NO.6194 TO 6196/ MUM/2017 I.T.A. NO. 6291/ MUM/2017 46 | P A G E RIGHTLY DELETED THE ADDITIONS AS WERE MADE BY THE AO. WE ARE INCLINED TO UPHOLD THE FINDINGS OF LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY REVENUE. WE ORDER ACCORDINGLY. 1 8 . IN THE RESULT, T HE APPEAL FILED BY REVENUE IN ITA NO. 6291/MUM/2017 FOR AY 2012 - 13 IS DISMISSED. 19. IN THE RESULT APPEAL FILED BY THE ASSESSEE IN ITA NO. 6194/MUM/2017 FOR AY 2011 - 12 IS PARTLY ALLOWED, APPEALS FILED BY THE ASSESSEE IN ITA NO. 6195 - 6196/MUM/2017 FOR AY 2012 - 13 AND 2013 - 14 ARE ALLOWED , WHILE APPEAL FILED BY REVENUE IN ITA NO. 6291/MUM/2017 FOR AY 2012 - 13 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 3 . 0 5 .2019 0 3 . 0 5 .2019 S D / - S D / - (MAHAVIR SINGH ) (RAMIT KOCHAR) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 0 3 . 0 5 .2019 NISHANT VERMA SR. PRIVATE SECRETARY COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI